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How forward looking are central banks? Some evidence from their forecasts

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We estimate forward-looking Taylor rules on data from macroeconomic forecasts of three central banks (Bank of England, National Bank of Poland and Swiss National Bank) in order to determine the extent to which these banks are forward looking in their monetary policy decisions. We find that all three banks are to some extent forward-looking, however to a varying degree. With respect to inflation, the NBP and the SNB look far into the future, while the BoE seems to concentrate on current inflation. As to output, the BoE and the SNB take into account its future or current value while for the NBP this variable is insignificant. We also find that central banks prefer to concentrate on one particular horizon rather than take into account the whole forecast.

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Paper provided by National Bank of Poland, Economic Institute in its series National Bank of Poland Working Papers with number 112.

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Length: 30
Date of creation: 2012
Date of revision:
Handle: RePEc:nbp:nbpmis:112

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Keywords: Taylor rule; forward-looking monetary policy; feedback horizon;

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  1. Leitemo, Kai, 2008. "Inflation-targeting rules: History-dependent or forward-looking?," Economics Letters, Elsevier, vol. 100(2), pages 267-270, August.
  2. N. Batini & P. Levine & J. Pearlman, 2003. "Indeterminacy with inflation-forecast-cased rules in a two-bloc model," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
  3. Joyce, Michael & Lasaosa, Ana & Stevens , Ibrahim & Tong, Matthew, 2010. "The financial market impact of quantitative easing," Bank of England working papers 393, Bank of England.
  4. Davutyan, Nurhan & Parke, William R, 1995. "The Operations of the Bank of England, 1890-1908: A Dynamic Probit Approach," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 27(4), pages 1099-1112, November.
  5. Aaron Drew & Adrian Orr, 1999. "The Reserve Bank's role in the recent business cycle: actions and evolutions," Reserve Bank of New Zealand Bulletin, Reserve Bank of New Zealand, vol. 62, March.
  6. Kai Carstensen, 2006. "Estimating the ECB Policy Reaction Function," German Economic Review, Verein für Socialpolitik, vol. 7, pages 1-34, 02.
  7. Jamie Gascoigne & Paul Turner, 2004. "Asymmetries in Bank of England monetary policy," Applied Economics Letters, Taylor & Francis Journals, vol. 11(10), pages 615-618.
  8. Jan Strasky, 2005. "Optimal Forward-Looking Policy Rules in the Quarterly Projection Model of the Czech National Bank," Research and Policy Notes 2005/05, Czech National Bank, Research Department.
  9. Eichengreen, Barry & Watson, Mark W & Grossman, Richard S, 1985. "Bank Rate Policy under the Interwar Gold Standard: A Dynamic Probit Model," Economic Journal, Royal Economic Society, vol. 95(379), pages 725-45, September.
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