Optimal Policy Projections, Issue 11392

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National Bureau of Economic Research, 2005 - Monetary policy - 25 pages
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The method is illustrated by revisiting the economy of early 1997 as seen in the Greenbook forecasts of Feb. 1997 and Nov. 1999. In both cases, the authors use the vintage of the FRB/US model that was in place at that time. These two particular forecasts were chosen, in part, because they were at the beginning and the peak, respectively, of the late 1990s boom period. As such, they differ markedly in their implied judgments of the state of the world in 1997 and the authors' OPPs illustrate this difference. For a conventional loss function, the authors' OPPs provide significantly better performance than Taylor-rule simulations.

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