Evaluating a vector of the Fed’s forecasts

In this paper we present a multivariate analysis of the Federal Reserve’s forecasts. First, we use existing univariate methods to evaluate each of the Fed’s forecasts of the ten major expenditure categories of real GDP which have not previously been evaluated in the literature. Second, we apply a recently developed methodology to evaluate jointly the vector of these forecasts. Finally, we use the same methodology to determine whether the Fed’s forecasts of GDP growth, inflation, and unemployment, taken together, present an accurate overall view of the economic situation, and compare the Fed’s forecasts to those of the Survey of Professional Forecasters. We find that the Fed’s forecasts were generally consistent with the overall conditions that actually occurred. We also find that the Fed’s forecasts and those of the Survey of Professional Forecasters are quite similar overall.