Empirical Economics

, Volume 58, Issue 1, pp 223–255 | Cite as

Appropriate monetary policy and forecast disagreement at the FOMC

  • Guido SchultefrankenfeldEmail author


I study the forecast updating behavior of Federal Open Market Committee members to assess how individual views on appropriate monetary policy translate into disagreement about the macroeconomic outlook. I match the cross-sectional skewness in interest rates with its inflation and unemployment forecast counterparts and apply standard panel techniques to the data. I observe that hawkish minority voters tend to forecast higher inflation rates relative to the consensus view on the future economy. A higher degree of skewness in the individual inflation forecasts can be attributed mainly to regional Federal Reserve presidents’ minority views on appropriate policy. When investigating potential forecast exaggeration due to strategic motives, however, I find significant differences in the forecast updating behavior neither for Fed governors as opposed to regional Fed presidents nor for members voting with the majority as opposed to voting against the majority nor for stayers and switchers with respect to individual monetary policy stance.


Federal Reserve System Federal Open Market Committee Monetary policy dissent Forecast disagreement 

JEL Classification

C12 E52 


Compliance with ethical standards

Conflict of interest

I hereby declare that I have no conflict of interest.

Ethical approval

This article does not contain any studies with human participants or animals.


  1. Banternghansa C, McCracken MW (2009) Forecast disagreement among FOMC members. Federal Reserve Bank of St. Louis working paper series (59)Google Scholar
  2. Batini N, Haldane AG (1998) Forward-looking rules for monetary policy. NBER working paper series (6543)Google Scholar
  3. Belden S (1989) Policy preferences of FOMC members as revealed by dissenting votes. J Money Credit Bank 21(4):432–441Google Scholar
  4. Bernhardt D, Capello M, Kutsoati E (2006) Who herds? J Financ Econ 80:657–675Google Scholar
  5. Besley T, Meads N, Surico P (2008) Insiders versus outsiders in monetary policymaking. Am Econ Rev Pap Proc 98(2):218–223Google Scholar
  6. Blinder AS (2007) Monetary policy by committee: why and how? Eur J Political Econ 23(1):106–123Google Scholar
  7. Board of Governors of the Federal Reserve System (2000). Monetary policy report to the congress, February 17, 2000 Google Scholar
  8. Board of Governors of the Federal Reserve System (2013). Monetary policy report, February 26, 2013Google Scholar
  9. Boero G, Smith J, Wallis KF (2008) Uncertainty and disagreement in economic prediction: the bank of England survey of external forecasters. Econ J 118(530):1107–1127Google Scholar
  10. Capistrán C, Ramos-Francia M (2010) Does inflation targeting affect the dispersion of inflation expectations? J Money Credit Bank 42(1):113–134Google Scholar
  11. Chappell HW Jr, McGregor RR (2000) A long history of FOMC voting behavior. South Econ J 66(4):906–922Google Scholar
  12. Chappell HW Jr, Havrilesky TM, McGregor RR (1993) Partisan monetary policies: presidential influence through the power of appointment. Q J Econ 108(1):185–218Google Scholar
  13. Chappell HW Jr, McGregor RR, Vermilyea T (2004) Majority rule, consensus building, and the power of the chairman: Arthur Burns and the FOMC. J Money Credit Bank 36(3):407–422Google Scholar
  14. Chappell HW Jr, McGregor RR, Vermilyea T (2007a) The persuasive power of a committee Chairman: Arthur Burns and the FOMC. Public Choice 132:103–112Google Scholar
  15. Chappell HW Jr, McGregor RR, Vermilyea T (2007b) The role of the bias in crafting consensus: FOMC decision making in the Greenspan Era. Int J Cent Bank 3(2):39–60Google Scholar
  16. Chong YY, Hendry DF (1986) Econometric evaluation of linear macro-economic models. Rev Econ Stud 53(4):671–690Google Scholar
  17. Clarida R, Galí J, Gertler M (1998) Monetary policy rules in practice: some international evidence. Eur Econ Rev 42:1033–1067Google Scholar
  18. Clarida R, Galí J, Gertler M (2000) Monetary policy rules and macroeconomic stability: evidence and some theory. Q J Econ 115:147–180Google Scholar
  19. Clements MP (2015) Do US macroeconomic forecasters exaggerate their differences? J Forecast 34:649–660Google Scholar
  20. Coibion O, Gorodnichenko Y (2012) What can survey forecasts tell us about information rigidities? J Political Econ 120(1):116–159Google Scholar
  21. Döpke J, Fritsche U (2006) When do forecasters disagree? An assessment of German growth and inflation forecast dispersion. Int J Forecast 22:125–135Google Scholar
  22. Dovern J, Fritsche U, Slacalek J (2012) Disagreement among forecasters in G7 countries. Rev Econ Stat 94(4):1081–1096Google Scholar
  23. Dueker MJ (1999) Measuring monetary policy inertia in target fed funds rate changes. Fed Reserve Bank St. Louis Rev 81:3–10Google Scholar
  24. Eichler S, Lähner T (2014) Forecast dispersion, dissenting votes, and monetary policy preferences of FOMC members: the role of individual career characteristics and political aspects. Public Choice 160:429–453Google Scholar
  25. Eichler S, Lähner T (2017) Regional, individual and political determinants of FOMC members’ key macroeconomic forecasts. J Forecast 37:119–132Google Scholar
  26. Ellis MA, Liu D (2016) FOMC forecasts and monetary policy deliberations. Econ Lett 147:131–134Google Scholar
  27. Ellison M, Sargent TJ (2009) A defence of the FOMC. University of Oxford Department of Economics discussion paper series (457)Google Scholar
  28. Engelberg J, Manski CF, Williams J (2009) Comparing the point predictions and subjective probability distributions of professional forecasters. J Bus Econ Stat 27(1):30–41Google Scholar
  29. Fendel R, Rülke J-C (2012) Are heterogeneous FOMC forecasts consistent with the Fed’s monetary policy? Econ Lett 116:5–7Google Scholar
  30. Galí J (2011) Are central banks’ projections meaningful? J Monet Econ 58(6–8):537–550Google Scholar
  31. Gavin WT, Mandal RJ (2003) Evaluating FOMC forecasts. Int J Forecast 19:655–667Google Scholar
  32. Gerlach-Kristen P (2004) Is the MPC’s voting record informative about future UK monetary policy? Scand J Econ 106(3):299–313Google Scholar
  33. Gerlach-Kristen (2009) Outsiders at the Bank of England’s MPC. J Money Credit Bank 41(6):1099–1116Google Scholar
  34. Gerlach-Kristen P, Meade E (2010) Is there a limit on FOMC dissents? Evidence from the Greenspan Era. American University working paper series (16)Google Scholar
  35. Hansen S, McMahon M, Velasco Rivera C (2014) Preferences or private assessments on a monetary policy committee? J Monet Econ 67:16–32Google Scholar
  36. Havrilesky T, Gildea JA (1991) The policy preferences of FOMC members as revealed by dissenting votes: comment. J Money Credit Bank 23(1):130–138Google Scholar
  37. Knüppel M, Schultefrankenfeld G (2017) Interest rate assumptions and predictive accuracy of central bank forecasts. Empir Econ 53(1):195–215Google Scholar
  38. Lahiri K, Sheng X (2010) Measuring forecast uncertainty by disagreement: the missing link. J Appl Econom 25(4):514–538Google Scholar
  39. López-Moctezuma G (2016) Sequential deliberation in collective decision-making: the case of the FOMC. Mimeo, New YorkGoogle Scholar
  40. Malmendier U, Nagel S (2016) Learning from inflation experiences. Q J Econ 131(1):53–87Google Scholar
  41. Malmendier U, Nagel S, Yan Z (2017) The making of Hawks and Doves: inflation experiences and voting on the FOMC. Mimeo, New YorkGoogle Scholar
  42. Mankiw NG, Reis R, Wolfers J (2003) Disagreement about inflation expectations. NBER Macroecon Annu 18:209–248Google Scholar
  43. McCracken M (2010a) Using FOMC forecasts to forecast the economy. Federal Reserve Bank of St. Louis economic synopses (5)Google Scholar
  44. McCracken MW (2010b) Disagreement at the FOMC. Reg Econ 18(4):10–16Google Scholar
  45. Meade EE (2005) The FOMC: preferences, voting and consensus. Fed Reserve Bank St. Louis Rev 87:93–101Google Scholar
  46. Meade EE, Sheets DN (2005) Regional influences on FOMC voting patterns. J Money Credit Bank 37(4):661–677Google Scholar
  47. Orphanides A, Wieland V (2008) Economic projections and rules of thumb for monetary policy. Fed Reserve Bank St. Louis Rev 90(4):307–324Google Scholar
  48. Reifschneider D, Tulip P (2007) Gauging the uncertainty of the economic outlook from historical forecasting errors. Finance and economics discussion series of the board of governors of the federal reserve system, vol 60Google Scholar
  49. Romer D (2010) A new data set on monetary policy: the economic forecasts of individual members of the FOMC. J Money Credit Bank 42(5):951–957Google Scholar
  50. Romer CD, Romer DH (2008) The FOMC versus the staff: where can monetary policymakers add value? Am Econ Rev Pap Proc 98(2):230–235Google Scholar
  51. Rülke J-C, Tillmann P (2011) Do FOMC members herd? Econ Lett 113:176–179Google Scholar
  52. Sheng X (2015) Evaluating the economic forecasts of FOMC members. Int J Forecast 31:165–175Google Scholar
  53. Svensson LEO (2006) The instrument-rate projection under inflation targeting: the Norwegian example. Centre for European policy studies working paper (127)Google Scholar
  54. Thornton DL, Wheelock DC (2014) Making sense of dissents: a history of FOMC dissents. Fed Reserve Bank St. Louis Rev 96(3):213–227Google Scholar
  55. Tillmann P (2011) Strategic forecasting on the FOMC. Eur J Political Econ 27:547–553Google Scholar
  56. Woodford M (2005) Central Bank communication and policy effectiveness. National Bureau of economic research working paper (11898)Google Scholar
  57. Zarnowitz V, Lambros L (1987) Consensus and uncertainty in economic prediction. J Political Econ 95(3):591–621Google Scholar

Copyright information

© Springer-Verlag GmbH Germany, part of Springer Nature 2019

Authors and Affiliations

  1. 1.Deutsche BundesbankFrankfurt am MainGermany
  2. 2.European Central BankFrankfurt am MainGermany

Personalised recommendations