constructs a measure of a forecast error shock for the Federal Reserve based on the assumption that the Fed follows a forward … treat the Fed's forecast errors as a shock, analogous to a monetary policy shock. Our shock, however, is different in that … Romer (2004) and investigate the effect of the forecast error shock on output and price movements. Our results suggest that …

is two. We also show that dimension two is generated by a real and nominal shock, with output mainly driven by the real … shock and inflation by the nominal shock. The implication is that, by tracking any forecastable measure of real activity and …