Bernanke should receive the Nobel Peace Prize…what he did for the U.S. economy and there in by the global economy has keep this downturn in hand. I’m not suggesting that the next great power war would have emerged if he had allowed a deflationary dynamic to gain traction but I find conflict to be feed by the fire of hardship and crisis. So keep this recession from being a depression is worthy of the prize. Now why am I saying this. Honestly, no particularly reason just wanted to put it out there. Now I’m going to criticise something that I believe he was instrumental in doing: the distributed estimates economic growth by the participants’ at fed meeting. Here are some of the GDP projection and distribution charts from the minutes release today.
Ben has for quite some time advocated for transparency (ranging from inflation targeting to new disclosure requirement to the forecast disclosure) with regard to policy making. In a lot of ways this makes sense (if they have more credability the job become easier, although if they just confuse people with the new information credability is lost). Now I love the way these chart suggest you should think about the world, that of a distributed or uncertain future. The idea is we don’t know what the future path of GDP growth will look like but these are our range of guesses and lets work with that range instead of a single estimate (…being a fatalist does make decision making easy though (note: that was a joke)…). But when I was thinking about these charts I realized that they are really a range of point estimates not a true estimate of the range. This is a suttle but important difference; I might expect (call this the most likley case) growth in 2011 to be at 4% but if I and everyone else thinks that there is a 25% chance of a L recovery (or 1% growth) in 2011, it will not be captured on this chart even though I suspect it really should be. This leads the chart to be overly rosy (in that particular example).
Ben – Next time make the chart as an estimate of the distribution instead of distribution of the estimates.
