Central bank’s macroeconomic projections and learning
AbstractWe study the impact of the publication of central bank’s macroeconomic projections on the dynamic properties of an economy where: (i) private agents have incomplete information and form their expectations using recursive learning algorithms, (ii) the short-term nominal interest rate is set as a linear function of the deviations of inflation and real output from their target level and (iii) the central bank, ignoring the exact mechanism used by private agents to form expectations, assumes that it can be reasonably approximated by perfect rationality and releases macroeconomic projections consistent with this assumption. Results in terms of stability of the equilibrium and speed of convergence of the learning process crucially depend on the set of macroeconomic projections released by the central bank. In particular, while the publication of inflation and output gap projections enlarges the set of interest rate rules associated with stable equilibria under learning and helps agents to learn faster, the announcement of the interest rate path exerts the opposite effect. In the latter case, in order to stabilize expectations and to speed up the learning process the response of the policy instrument to inflation should be stronger than under no announcement.
Download InfoIf 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.
Bibliographic InfoPaper provided by National Bank of Poland, Economic Institute in its series National Bank of Poland Working Papers with number 72.
Date of creation: 2010
Date of revision:
Note: The paper was presented at the National Bank of Poland’s conference „Publishing Central Bank forecast in theory and practice” held on 5–6 November 2009 in Warsaw.
Contact details of provider:
Postal: 00-919 Warszawa ul. Świętokrzyska 11/21
Phone: (0-22) 653 10 00
Fax: (0-22) 620 85 18
Web page: http://www.nbp.pl/Homen.aspx?f=en/publikacje/materialy_i_studia/informacja_en.html
More information through EDIRC
Monetary policy; Communication; Interest rates; Learning; Speed of Convergence;
Other versions of this item:
- Giuseppe Ferrero & Alessandro Secchi, 2010. "Central banks' macroeconomic projections and learning," Temi di discussione (Economic working papers) 782, Bank of Italy, Economic Research and International Relations Area.
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
- E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
- D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search, Learning, and Information
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-06-04 (All new papers)
- NEP-CBA-2010-06-04 (Central Banking)
- NEP-MAC-2010-06-04 (Macroeconomics)
- NEP-MON-2010-06-04 (Monetary Economics)
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.:
- Bullard, James & Mitra, Kaushik, 2002.
"Learning about monetary policy rules,"
Journal of Monetary Economics,
Elsevier, vol. 49(6), pages 1105-1129, September.
- Glenn D. Rudebusch & John C. Williams, 2006.
"Revealing the Secrets of the Temple: The Value of Publishing Central Bank Interest Rate Projections,"
NBER Working Papers
12638, National Bureau of Economic Research, Inc.
- Glenn D. Rudebusch & John C. Williams, 2008. "Revealing the Secrets of the Temple: The Value of Publishing Central Bank Interest Rate Projections," NBER Chapters, in: Asset Prices and Monetary Policy, pages 247-289 National Bureau of Economic Research, Inc.
- Glenn D. Rudebusch & John C. Williams, 2006. "Revealing the secrets of the temple: the value of publishing central bank interest rate projections," Working Paper Series 2006-31, Federal Reserve Bank of San Francisco.
- Eusepi, Stefano & Preston, Bruce, 2007.
"Central bank communication and expectations stabilization,"
Federal Reserve Bank of San Francisco, issue March, pages 1-43.
- Stefano Eusepi & Bruce Preston, 2010. "Central Bank Communication and Expectations Stabilization," American Economic Journal: Macroeconomics, American Economic Association, vol. 2(3), pages 235-71, July.
- Stefano Eusepi & Bruce Preston, 2007. "Central Bank Communication and Expectations Stabilization," Discussion Papers 0708-10, Columbia University, Department of Economics.
- Stefano Eusepi & Bruce Preston, 2007. "Central Bank Communication and Expectations Stabilization," NBER Working Papers 13259, National Bureau of Economic Research, Inc.
- Giuseppe Ferrero & Alessandro Secchi, 2009. "The Announcement of Monetary Policy Intentions," Temi di discussione (Economic working papers) 720, Bank of Italy, Economic Research and International Relations Area.
- 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.
- Martina Cecioni & Giuseppe Ferrero & Alessandro Secchi, 2011. "Unconventional Monetary Policy in Theory and in Practice," Questioni di Economia e Finanza (Occasional Papers) 102, Bank of Italy, Economic Research and International Relations Area.
- Evans, George W & Honkapohja, Seppo, 2011.
"Learning as a rational foundation for macroeconomics and finance,"
Research Discussion Papers
8/2011, Bank of Finland.
- Evans, George W. & Honkapohja, Seppo, 2011. "Learning as a Rational Foundation for Macroeconomics and Finance," CEPR Discussion Papers 8340, C.E.P.R. Discussion Papers.
- Alberto Locarno, 2012. "Monetary policy in a model with misspecified, heterogeneous and ever-changing expectations," Temi di discussione (Economic working papers) 888, Bank of Italy, Economic Research and International Relations Area.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Ewa Szymecka).
If references are entirely missing, you can add them using this form.