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Announcements of interest rate forecasts: Do policymakers stick to them?

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  • Nikola Mirkov

    ()
    (Universität St.Gallen)

  • Gisle James Natvik

    ()
    (Norges Bank (Central Bank of Norway))

Abstract

If central banks value the ex-post accuracy of their forecasts, previously announced interest rate paths might affect the current policy rate. We explore whether this "forecast adherence" has influenced the monetary policies of the Reserve Bank of New Zealand and the Norges Bank, the two central banks with the longest history of publishing interest rate paths. We derive and estimate a policy rule for a central bank that is reluctant to deviate from its forecasts. The rule can nest a variety of interest rate rules. We find that policymakers appear to be constrained by their most recently announced forecasts.

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File URL: http://www.norges-bank.no/en/Published/Papers/Working-Papers/2013/WP-201311/
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Bibliographic Info

Paper provided by Norges Bank in its series Working Paper with number 2013/11.

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Length: 40 pages
Date of creation: 11 Apr 2013
Date of revision:
Handle: RePEc:bno:worpap:2013_11

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Keywords: Interest rates; Forecasts; Taylor rule; Adherence;

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  1. Stephen Morris & Hyun Song Shin, 2002. "Social Value of Public Information," American Economic Review, American Economic Association, vol. 92(5), pages 1521-1534, December.
  2. Lars E. O. Svensson, 2003. "What is Wrong with Taylor Rules? Using Judgment in Monetary Policy through Targeting Rules," NBER Working Papers 9421, National Bureau of Economic Research, Inc.
  3. Levine, Paul & McAdam, Peter & Pearlman, Joseph G., 2006. "Inflation forecast-based-rules and indeterminacy: a puzzle and a resolution," Working Paper Series 0643, European Central Bank.
  4. Gauti B. Eggertsson & Michael Woodford, 2004. "Policy Options in a Liquidity Trap," American Economic Review, American Economic Association, vol. 94(2), pages 76-79, May.
  5. Amund Holmsen & Jan F. Qvigstad & Øistein Røisland & Kristin Solberg-Johansen, 2008. "Communicating monetary policy intentions: The case of Norges Bank," Working Paper 2008/20, Norges Bank.
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  7. Aron Drew & Özer Karagedikli, 2007. "Some Benefits of Monetary-Policy Transparency in New Zealand," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, vol. 57(11-12), pages 521-539, December.
  8. Richard Clarida & Jordi Gali & Mark Gertler, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," NBER Working Papers 7147, National Bureau of Economic Research, Inc.
  9. Pierre Gosselin & Aileen Lotz & Charles Wyplosz, 2008. "The Expected Interest Rate Path: Alignment of Expectations vs. Creative Opacity," International Journal of Central Banking, International Journal of Central Banking, vol. 4(3), pages 145-185, September.
  10. Glenn D. Rudebusch, 2001. "Term structure evidence on interest rate smoothing and monetary policy inertia," Working Paper Series 2001-02, Federal Reserve Bank of San Francisco.
  11. Walsh, Carl E., 2013. "Announcements and the Role of Policy Guidance," Review, Federal Reserve Bank of St. Louis, issue Nov, pages 575-600.
  12. Gersbach, Hans & Hahn, Volker, 2008. "Monetary Policy Inclinations," CEPR Discussion Papers 6761, C.E.P.R. Discussion Papers.
  13. Söderlind, Paul, 1998. "Solution and Estimation of RE Macromodels with Optimal Policy," Working Paper Series in Economics and Finance 256, Stockholm School of Economics.
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