The Federal Reserve Bank of New York works to promote sound and well-functioning financial systems and markets through its provision of industry and payment services, advancement of infrastructure reform in key markets and training and educational support to international institutions.
The Outreach and Education function engages, empowers and educates the Second District communities that the Bank serves, especially civic leaders, students, educators, small business owners, policymakers and the general public. It furthers the Bank's commitment to the region by listening to the communities we serve and leveraging our unique attributes to positively impact school and university programs, as well as analysis and research.
This paper evaluates current strategies for the empirical modeling of forecast behavior. In particular, we focus on the reliability of using proxies from time series models of heteroskedasticity to describe changes in predictive confidence. We address this issue by examining the relationship between ex post forecast errors and ex ante measures of forecast uncertainty from data on inflation forecasts from the Survey of Professional Forecasters. The results provide little evidence of a strong link between observed heteroskedasticity in the consensus forecast errors and forecast uncertainty. Instead, the findings indicate a significant link between observed heteroskedasticity in the consensus forecast errors and forecast dispersion. We conclude that conventional model-based measures of uncertainty may be capturing not the degree of confidence that individuals attach to their forecasts but rather the degree of disagreement across individuals in their forecasts.