The Unassuming Economist

A new paper finds that “policymakers’ value-added is greater when economic conditions are unfavorable or uncertain.” “[…] in certain circumstances, the value of the FOMC’s informational advantage and judgement-based adjustments to the staff forecasts is greater. The use of explicit formal models for quantitative macroeconomic forecasting proliferated in the 1960s, but forecasters typically adjust the model-based forecasts using their own judgment (Wallis, 1989). There is mixed evidence on the value of “judgmental adjustments,” which can introduce psychological biases but can also compensate for model limitations, and
may be especially valuable when economic events lack close historical precedents (McNees, 1990).”