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Velocity Futures Markets: Does the Fed Need a Structural Model?

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Author Info
Aaron L. Jackson
Scott Sumner

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Abstract

Previous proposals suggesting monetary policy makers target private-sector forecasts have been shown to be problematic. As policy becomes more effective, private-sector forecasts become less informative. Under perfect stabilization private-sector forecasts provide no useful guidance to monetary policy makers about economic shocks. We illustrate a way around this circularity problem by creating a policy futures market linked to the ratio of the (realization of the) policy goal for next period and the current instrument setting. The implication is that extensive information gathering is unnecessary, weakening the argument that central banks need a structural model to conduct policy. (JEL E52, E44, E42) Copyright 2006, Oxford University Press.

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File URL: http://hdl.handle.net/10.1093/ei/cbj044
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Publisher Info
Article provided by Oxford University Press in its journal Economic Inquiry.

Volume (Year): 44 (2006)
Issue (Month): 4 (October)
Pages: 716-728
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Handle: RePEc:oup:ecinqu:v:44:y:2006:i:4:p:716-728

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Find related papers by JEL classification:
E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System

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This page was last updated on 2009-12-15.

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