John Silvia – Chief Economist December 12, 2003

1. Presentation to: FDIC Economic Outlook Panel Art of Forecasting: The Financial Economy John Silvia – Chief Economist December 12, 2003

5. Blue Chip Consensus performs better than any individual forecaster. Average of forecasts reduces noise/bias of individual forecasters Access to independent information Auto, Housing, Sectors Regional Influences *Forecast Evaluation with Cross-Sectional Data: The Blue Chip Surveys, Bauer et. Al., FRB-Atlanta Economic Review, Second Quarter 2003

7. Error Persistence second Half of 1990s* GDP, Unemployment Rate, Inflation Underreported GDP when inflation, Interest Rates Low Inefficient Forecasts * Scott Schuh, An Evaluation of Recent Macroeconomic Forecast Errors, Forecasts Unbiased but Inefficient Structural Change: Inflation, Unemployment and Nominal Interest Rate Error Correlated. New England Economic Review, Jan/Feb 2001

8. Second Half of 1990s Forecast Errors Persist: GDP, Unemployment Rate Errors biased over short periods Inflation: Underpredict 1970s On Track 1990s Inefficient Forecasts Data on Inflation, Nominal Interest Rate Improves, GDP forecast Not All Information on Inflation and Interest Rates are Incorporated into Average GDP Forecasts.

18. Financial Risk

26. Bank Lending

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