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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. Hans Gersbach & Volker Hahn, 2011. "Monetary Policy Inclinations," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 43(8), pages 1707-1717, December.
  2. Aaron Drew & Özer Karagedikli, 2008. "Some benefits of monetary policy transparency in New Zealand," Reserve Bank of New Zealand Discussion Paper Series DP2008/01, Reserve Bank of New Zealand.
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  7. Charles Goodhart, 2009. "The Interest Rate Conditioning Assumption," International Journal of Central Banking, International Journal of Central Banking, vol. 5(2), pages 85-108, June.
  8. 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.
  9. Soderlind, Paul, 1999. "Solution and estimation of RE macromodels with optimal policy," European Economic Review, Elsevier, vol. 43(4-6), pages 813-823, April.
  10. 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.
  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. 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.
  13. 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.
  14. Stephen Morris & Hyun Song Shin, 2002. "Social Value of Public Information," American Economic Review, American Economic Association, vol. 92(5), pages 1521-1534, December.
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