Predicting the Feds Target Rate Decisions
نویسنده
چکیده
This paper examines the predictive content of several macroeconomic variables for the decisions of the Federal Open Market Committee (FOMC) to change its target for the Federal funds rate. To take the discrete nature of the target changes and their serial dependence into account we develop forecasting procedures that are based on dynamic extensions of a multinomial logit model. We nd that the current values of the 6-months Treasure bill spread relative to the Federal funds rate, the unemployment rate and the GDP growth rate have strong predictive content for target rate decisions to be made in an FOMC meeting scheduled up to several months ahead. Dynamic models that condition on lagged target change decisions do not result in signi cant improvement in the forecasting accuracy when the best performing predictive variables are employed. Keywords: Federal funds rate target, dynamic multinomial logit model JEL Classi cation: C53, E43, E58
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