The Rationality of Federal Funds Rate Expectations: Evidence from a Survey.

Rational expectations is a key aspect of financial asset pricing theory. To the extent that the MMS survey accurately reflects expectations, evidence in this paper does not support this assumption, indicating that the economists' forecasts are biased and only marginally outperform random walk forecasts. However, the survey forecasts incorporate the information contained in out-of-sample time series forecasts and their accuracy increases for maintenance periods in which the discount rate was changed. [ABSTRACT FROM AUTHOR]