Making FFR forecasts using the MPM

The value of the MPM lies in its ability not only to explain the prevailing FFR, but to forecast future FFR levels. The performance of the model since 1980 when using annual data means that the use of dependable annual economic forecasts for GDP and inflation should produce estimates of the FFR for forthcoming years. This chapter looks at the economic projections of the US Congressional Budget Office (CBO), uses the CBO’s economic projections from 1987 to 2002 in the MPM, then compares the results with the actual FFR.