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Forecasting ECB Monetary Policy

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  • Michael Ehrmann
  • Marcel Fratzscher
  • Helge Berger

Abstract

Monetary policy in the euro area is conducted within a multicountry, multicultural, and multilingual context involving multiple central banking traditions. How does this heterogeneity affect the ability of economic agents to understand and to anticipate monetary policy by the European Central Bank (ECB)? Using a database of surveys of professional ECB policy forecasters in 24 countries, we find remarkable differences in forecast accuracy, and show that they are partly related to geography and clustering around informational hubs, as well as to country-specific economic conditions and traditions of independent central banking in the past. In large part, this heterogeneity can be traced to differences in forecasting models. While some systematic differences between analysts have been transitional and are indicative of learning, others are more persistent.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 06/41.

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Length: 42
Date of creation: 01 Feb 2006
Date of revision:
Handle: RePEc:imf:imfwpa:06/41

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Keywords: European Central Bank; Economic forecasting; Data collection; Data analysis; forecasting; inflation; monetary policy; central bank; dummy variable; significance level; predictions; monetary policy decisions; survey; standard deviation; absolute error; probability; monetary union; monetary fund; independent variables; transmission of monetary policy; surveys; empirical model; monetary transmission; forward-looking model; probabilities; outliers; statistical terms; independent variable; monetary policy strategies; explanatory power; monetary policy transmission mechanism; monetary policy rule; samples; statistics; european monetary union; prediction; monetary transmission process; descriptive statistics; degree of heterogeneity; statistical significance; equation; absolute errors; monetary institutions; optimal monetary policy; coefficient vector; monetary aggregate; probability distribution;

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References

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Citations

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Cited by:
  1. Christopher W. Crowe, 2006. "Testing the Transparency Benefits of Inflation Targeting," IMF Working Papers 06/289, International Monetary Fund.
  2. Menkhoff, Lukas & Schmeling, Maik, 2006. "Local Information in Foreign Exchange Markets," Hannover Economic Papers (HEP) dp-331, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  3. Andrzej Torój, 2009. "Solving forward-looking models of cross-country adjustment within the euro area," Working Papers 1, Ministry of Finance in Poland.
  4. Martin Cihák & Katerina Smídková & Ales Bulir, 2008. "Writing Clearly," IMF Working Papers 08/252, International Monetary Fund.
  5. Lütje, Torben & Menkhoff, Lukas, 2004. "What Drives Home Bias? Evidence from Fund Managers Views," Hannover Economic Papers (HEP) dp-296, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
  6. Menno Middeldorp, 2011. "Central Bank Transparency, the Accuracy of Professional Forecasts, and Interest Rate Volatility," Working Papers 11-12, Utrecht School of Economics.
  7. Berger, Helge & Ehrmann, Michael & Fratzscher, Marcel, 2006. "Geography or skills: What explains Fed watchers’ forecast accuracy of US monetary policy?," Working Paper Series 0695, European Central Bank.

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