Advanced Search
MyIDEAS: Login to save this paper or follow this series

The influence and policy signaling role of FOMC forecasts

Contents:

Author Info

  • Paul Hubert

    ()
    (Ofce sciences-po)

Abstract

Policymakers at the Federal Open Market Committee (FOMC) publish forecasts since 1979. We examine the effects of publishing FOMC inflation forecasts in two steps using a structural VAR model. We assess whether they influence private inflation expectations and the underlying mechanism at work: do they convey policy signals for forward guidance or help interpreting current policy decisions? We provide original evidence that FOMC inflation forecasts are able to influence private ones. We also find that FOMC forecasts give information about future Fed rate movements and affect private expectations in a different way than Fed rate shocks. This body of evidence supports the use of central bank forecasts to affect inflation expectations especially while conventional policy instruments are at the zero lower bound

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://www.ofce.sciences-po.fr/pdf/dtravail/WP2013-03.pdf
Download Restriction: no

Bibliographic Info

Paper provided by Observatoire Francais des Conjonctures Economiques (OFCE) in its series Documents de Travail de l'OFCE with number 2013-03.

as in new window
Length:
Date of creation: Feb 2013
Date of revision:
Handle: RePEc:fce:doctra:1303

Contact details of provider:
Postal: 69, quai d'Orsay - 75007 PARIS
Phone: 01 44 18 54 00
Fax: 01 45 56 06 15
Email:
Web page: http://www.ofce.sciences-po.fr/
More information through EDIRC

Related research

Keywords: Monetary policy; Forecasts; FOMC; influence; Policy signals; structural Var;

Other versions of this item:

Find related papers by JEL classification:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Carlo Rosa, 2008. "Talking Less and Moving the Market More: Is this the Recipe for Monetary Policy Effectiveness? Evidence from the ECB and the Fed," CEP Discussion Papers dp0855, Centre for Economic Performance, LSE.
  2. Swanson, Eric T., 2006. "Have Increases in Federal Reserve Transparency Improved Private Sector Interest Rate Forecasts?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(3), pages 791-819, April.
  3. Eric Sims & Ruediger Bachmann, 2011. "Confidence and the Transmission of Government Spending Shocks," 2011 Meeting Papers 83, Society for Economic Dynamics.
  4. Fujiwara, Ippei, 2005. "Is the central bank's publication of economic forecasts influential?," Economics Letters, Elsevier, vol. 89(3), pages 255-261, December.
  5. Olivier Coibion & Yuriy Gorodnichenko, 2010. "Information Rigidity and the Expectations Formation Process: A Simple Framework and New Facts," Working Papers 102, Department of Economics, College of William and Mary.
  6. Torben G. Andersen & Tim Bollerslev & Francis X. Diebold & Clara Vega, 2002. "Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange," NBER Working Papers 8959, National Bureau of Economic Research, Inc.
  7. N. Gregory Mankiw & Ricardo Reis, 2002. "Sticky Information Versus Sticky Prices: A Proposal To Replace The New Keynesian Phillips Curve," The Quarterly Journal of Economics, MIT Press, vol. 117(4), pages 1295-1328, November.
  8. Olivier Coibion & Yuriy Gorodnichenko, 2012. "What Can Survey Forecasts Tell Us about Information Rigidities?," Journal of Political Economy, University of Chicago Press, vol. 120(1), pages 116 - 159.
  9. Geraats, P.M., 2004. "Transparency and Reputation: The Publication of Central Bank Forecasts," Cambridge Working Papers in Economics 0473, Faculty of Economics, University of Cambridge.
  10. Refet S Gürkaynak & Andrew Levin & Eric Swanson, 2010. "Does Inflation Targeting Anchor Long-Run Inflation Expectations? Evidence from the U.S., UK, and Sweden," Journal of the European Economic Association, MIT Press, vol. 8(6), pages 1208-1242, December.
  11. Bernanke, Ben S & Woodford, Michael, 1997. "Inflation Forecasts and Monetary Policy," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 29(4), pages 653-84, November.
  12. Christopher D Carroll, 2002. "Macroeconomic Expectations of Households and Professional Forecasters," Economics Working Paper Archive 477, The Johns Hopkins University,Department of Economics.
  13. Blinder, Alan S. & Ehrmann, Michael & de Haan, Jakob & Fratzscher, Marcel & Jansen, David-Jan, 2008. "Central Bank communication and monetary policy: a survey of theory and evidence," Working Paper Series 0898, European Central Bank.
  14. Carlos Capistrán, 2006. "Bias in Federal Reserve Inflation Forecasts: Is the Federal Reserve Irrational or Just Cautious?," Working Papers 2006-14, Banco de México.
  15. Ehrmann, Michael & Eijffinger, Sylvester C. W. & Fratzscher, Marcel, 2009. "The role of central bank transparency for guiding private sector forecasts," CEPR Discussion Papers 7585, C.E.P.R. Discussion Papers.
  16. Jakob de Haan & David-Jan Jansen, 2007. "The Importance of Being Vigilant: Has ECB Communication Influenced Euro Area Inflation Expectations?," CESifo Working Paper Series 2134, CESifo Group Munich.
  17. Stephen G. Cecchetti & Craig Hakkio, 2009. "Inflation targeting and private sector forecasts," NBER Working Papers 15424, National Bureau of Economic Research, Inc.
  18. Moscarini, Giuseppe, 2004. "Limited information capacity as a source of inertia," Journal of Economic Dynamics and Control, Elsevier, vol. 28(10), pages 2003-2035, September.
  19. William T. Gavin, 2003. "FOMC forecast: is all the information in the central tendency?," Review, Federal Reserve Bank of St. Louis, issue May, pages 27-46.
  20. Christopher W. Crowe, 2006. "Testing the Transparency Benefits of Inflation Targeting," IMF Working Papers 06/289, International Monetary Fund.
  21. Tillmann, Peter, 2010. "The Fed's perceived Phillips curve: Evidence from individual FOMC forecasts," Journal of Macroeconomics, Elsevier, vol. 32(4), pages 1008-1013, December.
  22. Crowe, Christopher, 2010. "Testing the transparency benefits of inflation targeting: Evidence from private sector forecasts," Journal of Monetary Economics, Elsevier, vol. 57(2), pages 226-232, March.
  23. Wilbert van der Klaauw & Wandi Bruine de Bruin & Giorgio Topa & Basit Zafar & Olivier Armantier, 2012. "Inflation Expectations and Behavior: Do Survey Respondents Act on their Beliefs?," 2012 Meeting Papers 121, Society for Economic Dynamics.
  24. Carl E. Walsh, 2007. "Optimal Economic Transparency," International Journal of Central Banking, International Journal of Central Banking, vol. 3(1), pages 5-36, March.
  25. Christina D. Romer & David H. Romer, 2008. "The FOMC versus the Staff: Where Can Monetary Policymakers Add Value?," NBER Working Papers 13751, National Bureau of Economic Research, Inc.
  26. Michael R. Pakko, 2005. "On the Information Content of Asymmetric FOMC Policy Statements: Evidence From a Taylor-Rule Perspective," Economic Inquiry, Western Economic Association International, vol. 43(3), pages 558-569, July.
  27. Mira Farka, 2011. "The Asymmetric Impact Of “Informative” And “Uninformative” Federal Open Market Committee Statements On Asset Prices," Contemporary Economic Policy, Western Economic Association International, vol. 29(4), pages 469-493, October.
  28. Gurkaynak, Refet S & Sack, Brian & Swanson, Eric T, 2005. "Do Actions Speak Louder Than Words? The Response of Asset Prices to Monetary Policy Actions and Statements," MPRA Paper 820, University Library of Munich, Germany.
  29. Baeriswyl, Romain & Cornand, Camille, 2010. "The signaling role of policy actions," Journal of Monetary Economics, Elsevier, vol. 57(6), pages 682-695, September.
  30. Carlos Capistrán & Manuel Ramos-Francia, 2010. "Does Inflation Targeting Affect the Dispersion of Inflation Expectations?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(1), pages 113-134, 02.
  31. Chanont Banternghansa & Michael W. McCracken, 2009. "Forecast disagreement among FOMC members," Working Papers 2009-059, Federal Reserve Bank of St. Louis.
  32. David O. Lucca & Francesco Trebbi, 2009. "Measuring Central Bank Communication: An Automated Approach with Application to FOMC Statements," NBER Working Papers 15367, National Bureau of Economic Research, Inc.
  33. Muto, Ichiro, 2011. "Monetary policy and learning from the central bank's forecast," Journal of Economic Dynamics and Control, Elsevier, vol. 35(1), pages 52-66, January.
  34. Ellen E. Meade & David Stasavage, 2004. "Publicity of Debate and the Incentive to Dissent: Evidence from the US Federal Reserve," CEP Discussion Papers dp0608, Centre for Economic Performance, LSE.
  35. Gavin, William T. & Mandal, Rachel J., 2003. "Evaluating FOMC forecasts," International Journal of Forecasting, Elsevier, vol. 19(4), pages 655-667.
  36. William T. Gavin & Geetanjali Pande, 2008. "FOMC consensus forecasts," Review, Federal Reserve Bank of St. Louis, issue May, pages 149-164.
  37. Michael Ehrmann & Marcel Fratzscher, 2007. "Transparency, Disclosure, and the Federal Reserve," International Journal of Central Banking, International Journal of Central Banking, vol. 3(1), pages 179-225, March.
  38. Andrew Bauer & Robert A. Eisenbeis & Daniel F. Waggoner & Tao Zha, 2006. "Transparency, expectations and forecasts," Economic Review, Federal Reserve Bank of Atlanta, issue Q 1, pages 1-25.
  39. Romain Baeriswyl & Camille Cornand, 2010. "The signaling role of policy action," Working Papers of BETA 2010-04, Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg.
  40. Andrade, P. & Le Bihan, H., 2010. "Inattentive professional forecasters," Working papers 307, Banque de France.
  41. Henry W. Chappell, Jr. & Rob Roy McGregor & Todd A. Vermilyea, 2007. "The Role of the Bias in Crafting Consensus: FOMC Decision Making in the Greenspan Era," International Journal of Central Banking, International Journal of Central Banking, vol. 3(2), pages 39-60, June.
  42. Hayo, Bernd & Neuenkirch, Matthias, 2010. "Do Federal Reserve communications help predict federal funds target rate decisions?," Journal of Macroeconomics, Elsevier, vol. 32(4), pages 1014-1024, December.
  43. Peter Tillmann, 2010. "Strategic Forecasting on the FOMC," MAGKS Papers on Economics 201017, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
  44. David H. Romer & Christina D. Romer, 2000. "Federal Reserve Information and the Behavior of Interest Rates," American Economic Review, American Economic Association, vol. 90(3), pages 429-457, June.
  45. Guthrie, Graeme & Wright, Julian, 2000. "Open mouth operations," Journal of Monetary Economics, Elsevier, vol. 46(2), pages 489-516, October.
  46. Michael W. McCracken, 2010. "Using FOMC forecasts to forecast the economy," Economic Synopses, Federal Reserve Bank of St. Louis.
  47. Paul Hubert, 2013. "ECB projections as a tool for understanding policy decisions," Documents de Travail de l'OFCE 2013-04, Observatoire Francais des Conjonctures Economiques (OFCE).
  48. Paul Hubert, 2013. "ECB projections as a tool for understanding policy decisions," Documents de Travail de l'OFCE 2013-04, Observatoire Francais des Conjonctures Economiques (OFCE).
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Paul Hubert, 2013. "ECB projections as a tool for understanding policy decisions," Documents de Travail de l'OFCE 2013-04, Observatoire Francais des Conjonctures Economiques (OFCE).

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:fce:doctra:1303. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Francesco Saraceno).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.