The type of time series model chosen for the comparison is, despite its simplicity, difficult to surpass, according to several international studies. Moreover, they have analysed how far ahead we can make forecasts with good accuracy, that is to say what forecasting memory the different variables have.5 They have also looked at whether there are tendencies to systematically over-estimate or under-estimate the different variables, that is, whether the forecasts have any bias. What does the analysis show about our forecasting performance? Let us first look at the entire period and compare our forecasts for GDP, employment and CPIX with outcomes. CPIX is a measure of underlying inflation, which until recently was known as UND1X. Hardly surprisingly, it appears that the forecasts have varied in accuracy (Figure 1). For instance, we have under-estimated employment growth recently (Figure 2). Nor did we predict the sharp rise in inflation spring 2001 in our assessments the previous year. However, we were more successful in capturing the downswing in inflation during 2003 (Figure 3). But how do things look in more detail for the different variables? Forecasts for GDP growth With regard to the GDP forecasts, we have periodically been accurate and close to the outcome, while we have fallen short on other occasions (Figure 1). It is often particularly difficult to make forecasts in an economic turnaround. Compared with the time series model that is used to gain a perspective of the forecasting memory, we make better GDP forecasts up to a year ahead.
I favor delaying liftoff until I am more certain that we have sufficient momentum in place toward our policy goals. And I think we should plan for our path of policy rate increases to be shallow in order to be sure that the economy’s momentum is sustainable in the presence of less accommodative financial conditions. I look forward to the day when we can return to business-as-usual monetary policy, but that time has not yet arrived. 3  6  Lockhart (2014). BIS central bankers’ speeches  References Federal Open Market Committee, 2014, Summary of Economic Projections(external-pdf), Washington, DC, September 17. Kocherlakota, Narayana, 2013, “A time of testing,” speech, St. Paul Chamber of Commerce, St. Paul, MN, November 12. Lockhart, Dennis, 2014, “Thoughts on liftoff,” speech, Global Interdependence Center, Sixth Annual Rocky Mountain Economic Summit, Jackson Hole, WY, July 11. BIS central bankers’ speeches  7