In the July/August 1995 issue of the New England Economic Review, Stephen K. McNees of the Federal Reserve Bank of Boston presented an assessment of the relative accuracy of forecasts produced by the Congressional Budget Office (CBO), the Council of Economic Advisers (CEA), the Federal Open Market Committee (FOMC), and private sector forecasting firms. The table below, derived from Table 3 in McNees’ article, presents data on the root mean squared errors (RMSE values) for forecasts of inflation and real GNP growth produced by the CBO, the CEA, and the private sector over the 1976-1994 period.

Variable

CBO

CEA

Private Sector

CPI Inflation, Two-Year Average Growth Rate

(measured in percentage points)

1.8 (CBO)

1.8 (CEA)

1.8 ( Private Sector)

Real GNP, Two-Year Average Growth Rate

(measured in percentage points)

1.0 (CBO)

1.3 (CEA)

1.0 (Private Sector)

Real GNP, Four-Year Average Growth Rate

(measured in percentage points)

1.2 (CBO)

1.5 (CEA)

1.0 (Private Sector)

Comment briefly on the relative forecast accuracy for each variable of the CBO, the CEA, and the private sector.

Answer rating: 100% (QA)

Root Mean Square Forecast Error RMSFE measures the standard error of the forecast residual Forecast ... View the full answer