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Are Banking Supervisory Data Useful for Macroeconomic Forecasts?

Published February 1, 2003


Preston J. Miller Former Vice President and Monetary Adviser
Ron J. Feldman Assistant Vice President
Jason Schmidt Senior Financial Economist
Are Banking Supervisory Data Useful for Macroeconomic Forecasts?


Some argue that central banks can improve monetary policy by including confidential supervisory assessments of banking organizations in their forecasts of inflation and unemployment. In this study we examine the extent to which forecasts of these variables would have been improved with the inclusion of supervisory data. We begin by reproducing the earlier results used to support the claim. We critically examine them and extend the analysis from in-sample to out-of-sample testing. Finally, we check the robustness of our findings by extending the analysis period, using a different methodology to determine the contribution to forecasts, and substituting a different measure of supervisory information. Our analysis does not support claims that confidential supervisory information would have improved forecasts of inflation. Confidential supervisory information improved forecasts of unemployment in some periods. It is unclear, however, if the frequency or level of improvement would have altered monetary policy in a nontrivial way.