The Role of Models and Probabilities in the Monetary Policy Process

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Abstract
This ambitious paper tackles an extraordinarily difficult question: what is the role of formal statistical models in evaluating economic policies? In particular, the paper studies the use of such models by central banks in various capacities. Although the paper addresses a wide range of issues and provides a fair amount of qualitative description of how central banks use large-scale models, its main contributions are twofold. First, it provides an evaluation of the forecasting performance of the Federal Reserve. Second, it addresses several broad questions concerning the appropriate ways of using statistical models in the policy process. I will deal with each of these components in turn.

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