Roth Lecture: "How Bad Are Economic Forecasts and Why Should We Care?"

Forecasts of the economy play a key role in monetary and fiscal policy decisions. Economists study forecasts and forecast errors in order to understand the value (or lack of value) of such forecasts under various conditions. In this talk I will discuss my research on measuring and comparing forecast errors across private sector and government forecasters. I will discuss how the Great Moderation starting in the early 1980s and the Federal Reserve’s movement toward greater transparency starting in the early 1990s affected forecasts and forecast errors. I will show how policy actions by the Federal Reserve, which are based on forecasts, appear to affect the forecastability of the economy. I conclude with a discussion of how past errors in forecasting may have affected past monetary policy decisions.