Update to Partisan Bias in Fed Inflation Forecasts

February 7, 2012

(This article was first published on Christopher Gandrud, and kindly contributed to R-bloggers)

Since I’m in the depths of PhD thesis revisions I haven’t had much time to do much other than update previous posts (see my Stata Country Standardizer Update).

Here is an update of an earlier post about possible partisan biases in US Federal Reserve staff inflation forecasts (these influence Federal Open Market Committee meetings where US monetary policy is largely made). The new graph below allows us to see even more of what has been going on over time.

The partisan effect is less obvious than in the earlier graph, but is is clear that during this time period the big over estimations are during Democratic presidencies and the big (actually almost all) underestimations are during Republican ones. The effect would be even stronger if we took out the end of Reagan’s first term and his second one, where Fed staff may not have fully adjusted their forecasting to reflect the Volker-Greenspan era of moderate inflation.

For more details about the graph (sources, how ‘error’ is defined, etc.) see the earlier post.

Greenbook Inflation Forecast Errors, by Presidential Party
Note, the shaded area indicates minimal error.
The R Code:

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