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Revealing the secrets of the temple: the value of publishing central bank interest rate projections

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Author Info
Glenn D. Rudebusch
John C. Williams

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Abstract

The modern view of monetary policy stresses its role in shaping the entire yield curve of interest rates in order to achieve various macroeconomic objectives. A crucial element of this process involves guiding financial market expectations of future central bank actions. Recently, a few central banks have started to explicitly signal their future policy intentions to the public, and two of these banks have even begun publishing their internal interest rate projections. We examine the macroeconomic effects of direct revelation of a central bank's expectations about the future path of the policy rate. We show that, in an economy where private agents have imperfect information about the determination of monetary policy, central bank communication of interest rate projections can help shape financial market expectations and may improve macroeconomic performance.

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Paper provided by Federal Reserve Bank of San Francisco in its series Working Paper Series with number 2006-31.

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Date of creation: 2006
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Handle: RePEc:fip:fedfwp:2006-31

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Keywords: Monetary policy;

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This paper has been announced in the following NEP Reports: References listed on IDEAS
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Full references

Cited by:
(explanations, 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.)

  1. Alan S. Blinder & Michael Ehrmann & Marcel Fratzscher & Jakob De Haan & David-Jan Jansen, 2008. "Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence," NBER Working Papers 13932, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Hughes Hallett Andrew & Di Bartolomeo Giovanni & Acocella Nicola, 2008. "Controllability under rational expectations," wp.comunite 0042, Department of Communication, University of Teramo. [Downloadable!]
  3. George A. Kahn, 2007. "Communicating a policy path: the next frontier in central bank transparency?," Economic Review, Federal Reserve Bank of Kansas City, issue Q I, pages 25-51. [Downloadable!]
  4. Marc-André Gosselin, 2007. "Central Bank Performance under Inflation Targeting," Working Papers 07-18, Bank of Canada. [Downloadable!]
  5. Chulia-Soler, H. & Martens, M.P.E. & Dijk, D.J.C. van, 2007. "The Effects of Federal Funds Target Rate Changes on S&P100 Stock Returns, Volatilities, and Correlations," Research Paper ERS-2007-066-F&A Revision, Erasmus Research Institute of Management (ERIM), ERIM is the joint research institute of the Rotterdam School of Management, Erasmus University and the Erasmus School of Economics (ESE) at Erasmus Uni. [Downloadable!]
  6. Hans Gersbach & Volker Hahn, 2008. "Forward Guidance for Monetary Policy: Is It Desirable?," Economics working paper series 08/84, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich. [Downloadable!]
  7. Troy Davig & Jeffrey R. Gerlach, 2006. "State-Dependent Stock Market Reactions to Monetary Policy," International Journal of Central Banking, International Journal of Central Banking, vol. 2(4), December. [Downloadable!]
  8. Glenn D. Rudebusch, 2005. "Monetary policy inertia: fact or fiction?," Working Papers in Applied Economic Theory 2005-19, Federal Reserve Bank of San Francisco. [Downloadable!]
    Other versions:
  9. Janet L. Yellen, 2006. "Enhancing Fed credibility," FRBSF Economic Letter, Federal Reserve Bank of San Francisco, issue Mar 17. [Downloadable!]
    Other versions:
  10. Melecky, Martin & Rodrıguez Palenzuela, Diego & Soderstrom, Ulf, 2008. "Inflation Target Transparency and the Macroeconomy," MPRA Paper 10545, University Library of Munich, Germany. [Downloadable!]
    Other versions:
  11. Michael Ehrmann & Marcel Fratzscher, 2008. "Purdah - on the rationale for central bank silence around policy meetings," Working Paper Series 868, European Central Bank. [Downloadable!]
    Other versions:
  12. Stephen Morris & Hyun Song Shin, 2007. "Coordinating Expectations in Monetary Policy," Levine's Bibliography 321307000000000956, UCLA Department of Economics. [Downloadable!]
  13. Richhild Moessner & William Nelson, 2008. "Central bank policy rate guidance and financial market functioning," BIS Working Papers 246, Bank for International Settlements. [Downloadable!]
  14. Maria Demertzis & Nicola Viegi, 2008. "Inflation Targets as Focal Points," International Journal of Central Banking, International Journal of Central Banking, vol. 4(1), pages 55-87, March. [Downloadable!]
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  15. Marcel Peter & Geoffrey Heenan & Scott Roger, 2006. "Implementing Inflation Targeting: Institutional Arrangements, Target Design, and Communications," IMF Working Papers 06/278, International Monetary Fund. [Downloadable!]
  16. Elmar Mertens, 2008. "Managing Beliefs about Monetary Policy under Discretion?," Working Papers 08.02, Swiss National Bank, Study Center Gerzensee. [Downloadable!]
  17. Di Bartolomeo Giovanni & Hughes Hallett Andrew & Acocella Nicola, 2008. "Policy games, policy neutrality and Tinbergen controllability under rational expectations," wp.comunite 0034, Department of Communication, University of Teramo. [Downloadable!]
  18. Brzoza-Brzezina, Michal & Kot, Adam, 2008. "The Relativity Theory Revisited: Is Publishing Interest Rate Forecasts Really so Valuable?," MPRA Paper 10296, University Library of Munich, Germany. [Downloadable!]
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  19. 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. [Downloadable!]
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