Article ID Journal Published Year Pages File Type
5052676 Economic Analysis and Policy 2017 11 Pages PDF
Abstract
Policy makers at the Federal Reserve must make decisions on less than perfect information. To the extent their forecasts are incorrect, policy decisions will also be incorrect. Unfortunately, economic forecasters have a relatively poor record and have not improved as much as one would hope. The research presented in this paper examines one potential source of forecast improvement, economic policy uncertainty. Modeling emotional responses of economic agents to uncertainty is difficult but the inclusion of a policy uncertainty variable could reduce forecast errors of the FOMC's consensus forecast by as much as 20%.
Related Topics
Social Sciences and Humanities Economics, Econometrics and Finance Economics and Econometrics
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