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Policy implications of learning from more accurate central bank forecasts

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  • Paul Hubert

    () (OFCE - Sciences Po)

Abstract

How might central bank communication of its internal forecasts assist the conduct of monetary policy? The literature has shown that heterogeneous expectations may have destabilizing effects on aggregate dynamics. This paper analyzes through adaptive learning the policy implications of central bank influence of private forecasts stemming from more accurate central bank forecasts. In this case, the central bank must only respect the Taylor principle to ensure macroeconomic stability, in contrast to the situation where private agents are learning from less accurate central bank forecasts.

Suggested Citation

  • Paul Hubert, 2015. "Policy implications of learning from more accurate central bank forecasts," Economics Bulletin, AccessEcon, vol. 35(1), pages 466-474.
  • Handle: RePEc:ebl:ecbull:eb-14-00071
    as

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    References listed on IDEAS

    as
    1. Paul Hubert, 2015. "Do Central Bank Forecasts Influence Private Agents? Forecasting Performance versus Signals," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 47(4), pages 771-789, June.
    2. Seppo Honkapohja & Kaushik Mitra, 2006. "Learning Stability in Economies with Heterogeneous Agents," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 9(2), pages 284-309, April.
    3. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
    4. McCallum, Bennett T., 2007. "E-stability vis-a-vis determinacy results for a broad class of linear rational expectations models," Journal of Economic Dynamics and Control, Elsevier, vol. 31(4), pages 1376-1391, April.
    5. Muto, Ichiro, 2011. "Monetary policy and learning from the central bank's forecast," Journal of Economic Dynamics and Control, Elsevier, vol. 35(1), pages 52-66, January.
    6. David H. Romer & Christina D. Romer, 2000. "Federal Reserve Information and the Behavior of Interest Rates," American Economic Review, American Economic Association, vol. 90(3), pages 429-457, June.
    7. Chryssi Giannitsarou, 2003. "Heterogeneous Learning," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 6(4), pages 885-906, October.
    8. Bennett T. McCallum & Edward Nelson, 2004. "Timeless perspective vs. discretionary monetary policy in forward-looking models," Review, Federal Reserve Bank of St. Louis, issue Mar, pages 43-56.
    9. Bullard, James & Mitra, Kaushik, 2002. "Learning about monetary policy rules," Journal of Monetary Economics, Elsevier, vol. 49(6), pages 1105-1129, September.
    10. Michael Woodford, 2001. "The Taylor Rule and Optimal Monetary Policy," American Economic Review, American Economic Association, vol. 91(2), pages 232-237, May.
    11. Blanchard, Olivier Jean & Kahn, Charles M, 1980. "The Solution of Linear Difference Models under Rational Expectations," Econometrica, Econometric Society, vol. 48(5), pages 1305-1311, July.
    12. Honkapohja, Seppo & Mitra, Kaushik, 2005. "Performance of monetary policy with internal central bank forecasting," Journal of Economic Dynamics and Control, Elsevier, vol. 29(4), pages 627-658, April.
    13. Ben S. Bernanke & Michael Woodford, 1997. "Inflation forecasts and monetary policy," Proceedings, Federal Reserve Bank of Cleveland, pages 653-686.
    14. George W. Evans & Seppo Honkapohja, 2003. "Adaptive learning and monetary policy design," Proceedings, Federal Reserve Bank of Cleveland, pages 1045-1084.
    15. Preston, Bruce, 2008. "Adaptive learning and the use of forecasts in monetary policy," Journal of Economic Dynamics and Control, Elsevier, vol. 32(11), pages 3661-3681, November.
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    More about this item

    Keywords

    Adaptive Learning; Taylor Principle; Monetary Policy;

    JEL classification:

    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty

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