How Do Forecasts Respond to Changes in Monetary Policy?

1. Why are forecast accuracy and forecaster rationality important issues?

2. Describe Ball and Croushore’s choice for measuring monetary policy.

3. How and why do Ball and Croushore construct benchmark forecasts?

4. How is tighter monetary policy expected to affect output growth and inflation, benchmark errors, and survey forecasts? Why?

5. How do Ball and Croushore test the rationality of survey forecasts? What are their findings?

6. What implications do Ball and Croushore’s findings have for new classical and new Keynesian analyses of changes in monetary policy?

Source: “How Do Forecasts Respond to Changes in Monetary Policy?” Laurence Ball and Dean Croushore, Federal Reserve Bank of Philadelphia Business Review, Fourth Quarter 2001, pp. 9-16.