GDP forecasts: Informational asymmetry of the SPF and FOMC minutes

Abstract

This paper emphasizes asymmetric information about the U.S. economy between the FOMC and SPF. Following Stekler and Symington (2016), it extends their text-based FOMC minutes index (FMI) of economic outlook to 1986-2016. Following Ericsson (2016), it employs truncation adjustment indicators and reinterprets the FMI calibrations as the policy-makers forecasts of the GDP growth, which carry information about the staff Greenbook forecasts prepared prior to the bi-quarterly FOMC meetings. Tests confirm unbiasedness and rationality of these forecasts. The encompassing tests indicate that both the FMI and SPF forecasts contain unique information beyond their alternative’s information set and can be weighted equally. The orthogonality tests suggest that the SPF efficiently use all their information set but could gain if the FOMC minutes were published without a lag, while the policy-makers rely mostly on their projections made earlier in the meetings, and could benefit from incorporating the already published SPF forecasts.