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The influence and policy signaling role of FOMC forecasts

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  • 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

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

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Date of creation: Feb 2013
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Handle: RePEc:fce:doctra:1303

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

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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).

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