Editors' Summary‪.‬

THE BROOKINGS PANEL ON Economic Activity held its seventy-fourth conference in Washington, D.C., on September 5 and 6, 2002. This issue of Brookings Papers on Economic Activity includes the papers and discussions presented at the conference. The first paper reviews the process and methods of inflation and output forecasting at four central banks and proposes strategies for improving the usefulness of their formal economic models for policymaking. The second paper analyzes the implications for monetary policymaking of uncertainty about the levels of the natural rates of unemployment and interest. The third paper examines reasons for the recent rise in current account deficits in the lower-income countries of Europe and the role of economic integration in breaking the link between domestic saving and domestic investment. The fourth paper applies a new decomposition of productivity growth to a new database of income-side output to examine the recent speedup in U.S. productivity growth and the contribution made by new economy industries. DESPITE A GROWING TRANSPARENCY IN the conduct of monetary policy at many central banks, little is still known publicly about the actual process of central bank decisionmaking. In the first paper of this issue, Christopher Sims examines this process, drawing on interviews with staff and policy committee members from the Swedish Riksbank, the European Central Bank, the Bank of England, and the U.S. Federal Reserve. Central bank policy actions are inevitably based on forecasts of inflation and output. Sims' interviews focused on how those forecasts are made, how uncertainty is dealt with, and what role formal economic models play in the process. In the case of the Federal Reserve, a history of subjective and model-based forecasts is publicly available, allowing Sims to evaluate and compare their performance both with each other and with private forecasts. He offers observations about how the performance of large econometric models could be improved, and how statistical inferences from them could be made more useful to policymakers.