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How Do FOMC Projections Affect Policy Uncertainty?

Author

Listed:
  • Brent Bundick
  • Trenton Herriford

Abstract

In January 2012, the Federal Open Market Committee (FOMC) began publicly releasing its participants? projections for the future value of the federal funds rate. The former FOMC Chair Ben Bernanke stated that these releases help the public form policy expectations. However, Federal Reserve Bank of San Francisco President John C. Williams noted that the range of the funds rate forecast conveyed disagreement and uncertainty. These projections may be conflicting in nature, and thus may not lower public uncertainty. Bundick and Herriford seek to answer the question: do these projections decrease or increase uncertainty about future policy? To answer this question, the authors measure how uncertainty about future interest rates changed after the FOMC began releasing its participants? projections for the appropriate federal funds rate. The authors found that the overall uncertainty about future interest rates decreased after FOMC began releasing its participants? interest rate projections. However, the authors found that public uncertainty is correlated with disagreement across participants? projections. In sum, the findings provide empirical support for the claims of Bernanke and Williams.

Suggested Citation

  • Brent Bundick & Trenton Herriford, 2017. "How Do FOMC Projections Affect Policy Uncertainty?," Economic Review, Federal Reserve Bank of Kansas City, issue Q II, pages 5-22.
  • Handle: RePEc:fip:fedker:00051
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    References listed on IDEAS

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    1. 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.
    2. George A. Kahn & Andrew Palmer, 2016. "Monetary Policy at the Zero Lower Bound: Revelations from the FOMC's Summary of Economic Projections," Economic Review, Federal Reserve Bank of Kansas City, issue Q I, pages 5-37.
    3. Swanson, Eric T., 2006. "Have Increases in Federal Reserve Transparency Improved Private Sector Interest Rate Forecasts?," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 38(3), pages 791-819, April.
    4. George A. Kahn & Andrew Palmer, 2016. "Monetary Policy at the Zero Lower Bound: Revelations from the Summary of Economic Projections," Macro Bulletin, Federal Reserve Bank of Kansas City, pages 1-4, April.
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    Cited by:

    1. Aeimit Lakdawala & Michael Bauer & Philippe Mueller, 2019. "Market-Based Monetary Policy Uncertainty," 2019 Meeting Papers 1403, Society for Economic Dynamics.
    2. Binder, Carola Conces, 2019. "Comment on “Central Bank announcements: Big news for little people?” by Michael Lamla and Dmitri Vinogradov," Journal of Monetary Economics, Elsevier, vol. 108(C), pages 39-44.
    3. Brent Bundick & Andrew Lee Smith, 2020. "Policymakers Have Options for Additional Accommodation: Forward Guidance and Yield Curve Control," Economic Bulletin, Federal Reserve Bank of Kansas City, pages 1-5, July.

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