Business Commons^™

Fiscal Surprises At The Fomc, Dean D. Croushore, Simon Van Norden

Economics Faculty Publications

We examine a new set of U.S. fiscal forecasts from FOMC briefing books. The forecasts were precisely those presented to monetary policymakers and include frequently updated estimates covering six complete business cycles and several fiscal-policy regimes. We detail the performance of forecast federal expenditures, revenues, surpluses, and structural surpluses in terms of accuracy, bias, and efficiency. We find that forecast errors can be economically large, even at relatively short forecast horizons. While economic activity became less volatile after 1990, fiscal policy became harder to forecast. Finally, cyclically adjusted deficit forecasts appear to be overoptimistic around both business cycle peaks and …