Saeed Zaman

A Medium Scale Forecasting Model for Monetary Policy

This paper presents a 16-variable Bayesian VAR forecasting model of the U.S. economy for use in a monetary policy setting. The variables that comprise the model are selected not only for their effectiveness in forecasting the primary variables of interest, but also for their relevance to the monetary policy process. In particular, the variables largely coincide with those of an augmented New-Keynesian DSGE model. We provide out-of sample forecast evaluations and illustrate the computation and use of predictive densities and fan charts. Although the reduced form model is the focus of the paper, we also provide an example of structural analysis to illustrate the macroeconomic response of a monetary policy shock.

Nowcasting U.S. Headline and Core Inflation

Forecasting future inflation and nowcasting contemporaneous inflation are difficult. We propose a new and parsimonious model for nowcasting headline and core inflation in the U.S. price index for personal consumption expenditures (PCE) and the consumer price index (CPI). The model relies on relatively few variables and is tested using real-time data. The model’s nowcasting accuracy improves as information accumulates over the course of a month or quarter, and it easily outperforms a variety of statistical benchmarks. In head-to-head comparisons, the model’s nowcasts of CPI inflation outperform those from the Blue Chip consensus, with especially significant outperformance as the quarter goes on. The model’s nowcasts for CPI and PCE inflation also significantly outperform those from the Survey of Professional Forecasters, with similar nowcasting accuracy for core inflation measures. Across all four inflation measures, the model’s nowcasting accuracy is generally comparable to that of the Federal Reserve’s Greenbook.

Combining Survey Long-Run Forecasts and Nowcasts with BVAR Forecasts Using Relative Entropy

We gratefully acknowledge comments from Gary Koop, Michele Modugno, Aubrey Poon, our discussant Sharada Davidson, the participants at the 11th International Conference on Computational and Financial Econometrics, Post-Graduate Research Away Day at the University of Strathclyde, and the International Institute of Forecasters 38th International Symposium on Forecasting. The views expressed herein are those of the authors and do not necessarily represent the views of the Federal Reserve Bank of Cleveland or the Federal Reserve System. Contact information: ellis.tallman@clev.frb.org and saeed.zaman@clev.frb.org. Federal Reserve Bank of Cleveland Federal Reserve Bank of Cleveland and University of Strathclyde