Do FOMC members herd?

Rülke, Jan-Christoph; Tillmann, Peter

doi:10.1016/j.econlet.2011.07.016

Cited by 28 publications

(22 citation statements)

References 11 publications

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“…11 Table 4 presents the results for differences in the voting status. Existing literature suggests significant differences of individual macroeconomic forecasts among voting and nonvoting Bank presidents, with nonvoters submitting extreme inflation forecasts for strategic reasons (see, e.g., Rülke & Tillmann, 2011;Tillmann, 2011). These differences in the voting status among Bank presidents may also explain their different intensities of regional bias when forming macroeconomic forecasts.…”

Section: Eichler and Lähner 125mentioning

confidence: 99%

“…Additionally, he concludes that nonvoting Bank presidents do not differ from their voting counterparts, as opposed to Tillmann (2011), who find that nonvoting FOMC members tend to submit extreme inflation forecasts to influence policy. What is more, particular nonvoting FOMC members show a tendency for antiherding when submitting inflation forecasts; that is, they place them more away from consensus (Rülke & Tillmann, 2011). McCracken (2010 argues that FOMC members have an incentive to forecast strategically; that is, they submit forecasts in line with their preferences of being either an inflation hawk (higher desired interest rates)-possibly leading to higher individual inflation forecasts-or an inflation "dove" (lower desired interest rates)-possibly leading to lower individual inflation forecasts regardless of the stance of the economy.…”

Section: Introductionmentioning

confidence: 99%

“…From this perspective, some studies find different forecast patterns related to the voting status. For strategic reasons, nonvoting Bank presidents' inflation forecasts are scattered more away from consensus (Rülke & Tillmann, 2011). What is more, nonvoting Bank presidents also show a tendency to submit more extreme inflation forecasts (Tillmann, 2011).…”

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Regional, individual and political determinants of FOMC members' key macroeconomic forecasts

Eichler

Lähner²

2017

Journal of Forecasting

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We study Federal Open Market Committee members' individual forecasts of inflation and unemployment in the period 1992-2004. Our results imply that Governors and Bank presidents forecast differently, with Governors submitting lower inflation and higher unemployment rate forecasts than bank presidents. For Bank presidents we find a regional bias, with higher district unemployment rates being associated with lower inflation and higher unemployment rate forecasts. Bank presidents' regional bias is more pronounced during the year prior to their elections or for nonvoting bank presidents. Career backgrounds or political affiliations also affect individual forecast behavior. KEYWORDS FOMC, individual characteristics, individual forecasts, regional bias | INTRODUCTIONWe analyze the forecast determinants of Federal Open Market Committee (FOMC) members. Individual forecasts of key macroeconomic factors (such as unemployment and inflation rates) are crucial indicators for determining optimal monetary policy when a forward-looking policy rule is considered. 1 Since the FOMC is a committee consisting of 12 voting members (seven members of the Board of Governors (BoG) 2 and five voting regional Federal Reserve Bank presidents), disagreement about the optimal monetary policy stance (as shown in many studies) not only leads to dissenting votes in the FOMC but may also lead to dispersion of forecasts among FOMC members. Thus analyzing the determinants of real-time inflation and unemployment rate forecasts may improve our understanding of differences in the monetary policy preferences among FOMC members. This paper aims to analyze the determinants of FOMC members' individual inflation and unemployment rate forecasts in the period 1992-2004. We add to the existing literature not only by considering a broadest set of potential regional, individual, and political characteristics, but also by testing determinants (such as career backgrounds, electoral cycles, political affiliation) not previously considered in the FOMC forecasting literature. Our results indicate considerable differences in the economic forecasts between Governors and Bank presidents. Moreover, forecasts of Bank presidents are influenced by the unemployment rate in their 1 Haldane and Batini (1999), as well as Rudebusch and Svensson (1999), compare monetary policy rules and conclude that forward-looking rules including forecasts of inflation instead of actual values can improve monetary policy performance relative to a simple benchmark rule (such as proposed in Taylor, 1993). Clarida, Gali, and Gertler (1998) find that so-called G3 central banks (Germany, Japan, USA) implicitly have followed a type of inflation-targeting regime since 1979, and thus all three central banks indirectly applied a forward-looking framework. Orphanides (2003) find periods -such as during the 1970s or mid-1990s-when a forecast-based rule did an even better job in describing FOMC's monetary policy. Orphanides and Wieland (2008) use a forecast-based Taylor rule framework and conclude...

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Section: Eichler and Lähner 125mentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

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Regional, individual and political determinants of FOMC members' key macroeconomic forecasts

Eichler

Lähner²

2017

Journal of Forecasting

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“…Our usage of the term herding, thus, should not be confused with the terminology used by other researchers who utilize the term herding to describe, for example, destabilizing trend-extrapolative forecasts in a time series context. 7 Recent applications of their empirical test focus on oil-price forecasts (Pierdzioch et al, 2010), car sale forecasts (Pierdzioch et al, 2011) and central bank forecasts (Rülke and Tillmann, 2011 forecasts further away from the consensus than they would have performed otherwise. Our finding of significant cross-sectional heterogeneity of forecasts in Section 3 could suggest that anti-herding is particularly prevalent among analysts participating in the Consensus Economics forecast poll.…”

Section: A Test For Herding and Anti-herdingmentioning

confidence: 99%

“…7 7 Recent applications of their empirical test focus on oil‐price forecasts (Pierdzioch et al , ), car sale forecasts (Pierdzioch et al , ) and central bank forecasts (Rülke and Tillmann, ).…”

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Do Corporate Profit Forecaster Herd?—evidence From Canada, Uk and the United States

Rülke

2012

Int. J Fin Econ

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Using more than 25 000 corporate profit forecasts for Canada, the United Kingdom and the United States, we find strong evidence of an anti‐herding behaviour. Apparently, corporate profit forecaster intentionally scatter their forecasts around the consensus forecast. We also document that the cross‐sectional heterogeneity of forecasts with regard to anti‐herding translates into cross‐sectional heterogeneity with regard to forecast accuracy. Forecasters who anti‐herd have a substantially higher forecast accuracy that may help to explain the rational bias in macroeconomic forecasting. Copyright © 2012 John Wiley & Sons, Ltd.

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Appropriate monetary policy and forecast disagreement at the FOMC

Schultefrankenfeld

2019

Empir Econ

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Research Question The Federal Open Market Committee (FOMC) of the Federal Reserve System is responsible for the conduct of monetary policy to, put simple, keep prices stable and employment high. Yet, members of the FOMC are not only in charge of setting interest rates but also of making forecasts for key macroeconomic variables, in particular for the future developments in the inflation rate and the unemployment rate. The present study aims to investigate how dissenting views on appropriate monetary policy translate into disagreement on macroeconomic forecasts. Contribution Disagreement in monetary policy committees is a well-studied phenomenon. This study builds on results from the literature, yet makes important additions. Over a sample period of fourteen years, the committee members' individual forecasts for future rates of inflation and unemployment are matched with their individual interest rates. In both forecast and interest rate data, disagreement is measured such that the direction of disagreement receives particular attention. Using panel methods, it is analyzed whether the direction in which minority voters deviate from the majority's view on interest rates translates into the direction of the disagreement about the macroeconomic outlook. In addition it is studied how committee members revise their individual macroeconomic outlook between two consecutive forecasting rounds. Results Estimation results imply that monetary policy makers that want higher interest rates forecast higher inflation and lower unemployment rates. The individual forecast revision behavior displays a similar pattern. The results can be interpreted such that monetary policy makers that opt for a tightening in monetary policy forecast economic developments that would emerge if the tightening would not be undertaken. Different from similar studies in this field, the current results yield evidence that monetary policy makers do rather not exaggerate their forecasts to signal their view on appropriate monetary policy. Nichttechnische Zusammenfassung Fragestellung Der Offenmarktausschuss (engl. Federal Open Market Committee, kurz: FOMC) des amerikanischen Notenbanksystems (engl. Federal Reserve System) verfolgt mit seinen geldpolitischen Entscheidungen, vereinfacht dargestellt, zwei Ziele: Preisstabilität und einen höchstmöglichen Beschäftigungsstand. Die Mitglieder des FOMC sind neben der Zinssetzung auch mit Vorhersagen über die zukünftige Entwicklung dieser wirtschaftlichen Zielgrößen betraut. Die vorliegende Studie versucht, das regelmäßige Auseinanderweichen von und mögliche ¨U bertreibungen bei individuellen Vorhersagen durch unterschiedliche Auffassungen über die Angemessenheit der Geldpolitik zu erklären. Beitrag Uneinigkeit in geldpolitischen Kommittees wie etwa dem FOMC ist ein gut erforschtes Phänomen. Die vorliegende Arbeit fußt auf Ergebnissen aus der Literatur, ergänzt aber wesentliche Bausteine. ¨U ber einen Zeitraum von vierzehn Jahren werden den individuell vorhergesagten Werten für die Inflationsrate und die Arbeitslos...

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Do FOMC members herd?

Cited by 28 publications

References 11 publications

Regional, individual and political determinants of FOMC members' key macroeconomic forecasts

Regional, individual and political determinants of FOMC members' key macroeconomic forecasts

Do Corporate Profit Forecaster Herd?—evidence From Canada, Uk and the United States

Appropriate monetary policy and forecast disagreement at the FOMC

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