HOW FORECASTS EVOLVE - THE GROWTH FORECASTS OF THE FEDERAL RESERVE AND THE BANK OF ENGLAND

We investigate how central bank forecasts of GDP growth evolve through time, and how they are adapted in the light of official estimates of actual GDP growth. Using data for 1988-2005, we find that the Federal Open Market Committee (FOMC) has typically adjusted its forecast for growth over the coming four quarters by about a third of the unexpected component of estimated growth in the four quarters most recently ended. We were unable to find any clear signs of systematic errors in the FOMC's forecasts. UK data for 1998-2005 suggest that the Bank of England Monetary Policy Committee (MPC) did not adjust its forecasts in this way, and that there were systematic forecast errors, but the evidence from the latter part of the period 2001-5 tentatively shows a behaviour pattern closer to that of the FOMC, with no clear signs of systematic errors.