Why do central banks monitor so many inflation indicators?
Monetary policy is typically undertaken with an eye to achieving a select few objectives in the long run. The Federal Reserve conducts monetary policy to promote two long-run goals: price stability and sustainable economic growth. In many other countries, central banks have a single long-run goal defined in terms of an inflation target. Yet while central banks have narrowly defined long-run goals, most monitor a wide range of economic indicators.> Why do central banks collect and analyze so many indicators? Kozicki presents multicountry empirical evidence to assess whether any single indicator reliably predicts inflation. If such an indicator exists, it would need to perform adequately under a wide variety of economic conditions and changing economic structures, because no country faces an unchanging economic environment. One way to test for such robust performance is to examine the value of indicators across a variety of countries experiencing different economic conditions, financial structures, policy shifts, and so forth.> Kozicki first discusses why several widely used indicators might predict inflation. She explains how the predictive performance of these indicators can be compared and reports empirical results for 11 developed economies, including the United States. She concludes that while monitoring the change in GDP growth is useful on average across countries, no single economic indicator is always reliable. This evidence supports an approach to policymaking that involves monitoring a wide range of economic indicators.
Volume (Year): (2001)
Issue (Month): Q III ()
|Contact details of provider:|| Postal: One Memorial Drive, Kansas City, MO 64198|
Phone: (816) 881-2254
Web page: http://www.kansascityfed.org
More information through EDIRC
|Order Information:|| Email: |
References listed on IDEAS
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.:
- R. W. Hafer, 1983. "Inflation: assessing its recent behavior and future prospects," Review, Federal Reserve Bank of St. Louis, issue Aug, pages 36-41.
- Jim Day & Ron Lange, 1997. "The Structure of Interest Rates in Canada: Information Content about Medium-Term Inflation," Staff Working Papers 97-10, Bank of Canada.
- Blanchard, O & Katz, L, 1996.
"What We Know and Do Not Know about the Natural Rate of Unemployment,"
96-29, Massachusetts Institute of Technology (MIT), Department of Economics.
- Olivier Blanchard & Lawrence F. Katz, 1997. "What We Know and Do Not Know about the Natural Rate of Unemployment," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 51-72, Winter.
- Olivier Blanchard & Lawrence F. Katz, 1996. "What We Know and Do Not Know About the Natural Rate of Unemployment," NBER Working Papers 5822, National Bureau of Economic Research, Inc.
- Davis, E Philip & Fagan, Gabriel, 1997. "Are Financial Spreads Useful Indicators of Future Inflation and Output Growth in EU Countries?," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 12(6), pages 701-714, Nov.-Dec..
- George T. McCandless & Warren E. Weber, 1995. "Some monetary facts," Quarterly Review, Federal Reserve Bank of Minneapolis, issue Sum, pages 2-11.
- Joseph A. Whitt & Paul D. Koch & Jeffrey A. Rosensweig, 1986. "The dollar and prices: an empirical analysis," Economic Review, Federal Reserve Bank of Atlanta, issue Oct, pages 4-18.
- Estrella, Arturo & Mishkin, Frederic S., 1997. "The predictive power of the term structure of interest rates in Europe and the United States: Implications for the European Central Bank," European Economic Review, Elsevier, vol. 41(7), pages 1375-1401, July.
- Robert J. Gordon, 1998. "Foundations of the Goldilocks Economy: Supply Shocks and the Time-Varying NAIRU," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 29(2), pages 297-346.
- Joseph Stiglitz, 1997. "Reflections on the Natural Rate Hypothesis," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 3-10, Winter.
- Brunello, Giorgio, 1990.
"Hysteresis and "The Japanese Unemployment Problem": A Preliminary Investigation,"
Oxford Economic Papers,
Oxford University Press, vol. 42(3), pages 483-500, July.
- Brunello, G., 1989. "Hysteresis And The Japanese Unemployment Problem: A Preliminary Investigation," Papers 330, London School of Economics - Centre for Labour Economics.
- Sharon Kozicki, 1997. "Predicting real growth and inflation with the yield spread," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 39-57.
- Jorion, Philippe & Mishkin, Frederic, 1991.
"A multicountry comparison of term-structure forecasts at long horizons,"
Journal of Financial Economics,
Elsevier, vol. 29(1), pages 59-80, March.
- Philippe Jorion & Frederic Mishkin, 1991. "A Multi-Country Comparison of Term Structure Forecasts at Long Horizons," NBER Working Papers 3574, National Bureau of Economic Research, Inc.
- Roberto Chang, 1997. "Is low unemployment inflationary?," Economic Review, Federal Reserve Bank of Atlanta, issue Q I, pages 4-13.
- Stephen G. Cecchetti & Rita S. Chu & Charles Steindel, 2000. "The unreliability of inflation indicators," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 6(Apr).
- Jeffrey A. Frankel & Cara S. Lown, 1991.
"An Indicator of Future Inflation Extracted From the Steepness of the Interest Rate Yield Curve Along Its Entire Length,"
NBER Working Papers
3751, National Bureau of Economic Research, Inc.
- Jeffrey A. Frankel & Cara S. Lown, 1994. "An Indicator of Future Inflation Extracted from the Steepness of the Interest Rate Yield Curve Along Its Entire Length," The Quarterly Journal of Economics, Oxford University Press, vol. 109(2), pages 517-530.
- Jeffrey A. Frankel & Cara S. Lown, 1991. "An indicator of future inflation extracted from the steepness of the interest rate yield curve along its entire length," Research Paper 9122, Federal Reserve Bank of New York.
- Lakshman Alles & Ramaprasad Bhar, 1997. "The information on inflation in the Australian term structure," Applied Financial Economics, Taylor & Francis Journals, vol. 7(6), pages 721-730.
- Olivier J. Blanchard, 1986.
"Hysteresis and Unemployment,"
430, Massachusetts Institute of Technology (MIT), Department of Economics.
- Douglas Staiger & James H. Stock & Mark W. Watson, 1997. "The NAIRU, Unemployment and Monetary Policy," Journal of Economic Perspectives, American Economic Association, vol. 11(1), pages 33-49, Winter.
- Stock, James H. & Watson, Mark W., 1999.
Journal of Monetary Economics,
Elsevier, vol. 44(2), pages 293-335, October.
- Frederic S. Mishkin, 1989. "A Multi-Country Study of the Information in the Term Structure about Future Inflation," NBER Working Papers 3125, National Bureau of Economic Research, Inc.
- Marco A. Espinosa-Vega & Steven Russell, 1997. "History and theory of the NAIRU: a critical review," Economic Review, Federal Reserve Bank of Atlanta, issue Q 2, pages 4-25.
- Joseph H. Haslag & D'Ann M. Ozment, 1991. "Money growth, supply shocks, and inflation," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue May, pages 1-17.
- Koedijk, Kees G & Kool, Clemens J M, 1995. "Future Inflation and the Information in International Term Structures," Empirical Economics, Springer, vol. 20(2), pages 217-242.
- Stephen R. Blough, 1994. "Yield curve forecasts of inflation: a cautionary tale," New England Economic Review, Federal Reserve Bank of Boston, issue May, pages 3-16.
- Keith Sill, 1999. "Forecasts, indicators and monetary policy," Business Review, Federal Reserve Bank of Philadelphia, issue May, pages 3-14.
- Stuart E. Weiner, 1993. "New estimates of the natural rate of unemployment," Economic Review, Federal Reserve Bank of Kansas City, issue Q IV, pages 53-69.
- Tzavalis, E. & Wickens, M.R., 1995.
"Forecasting Inflation from the Term Structure,"
9519, Exeter University, Department of Economics.
- Mishkin, Frederic S., 1991. "A multi-country study of the information in the shorter maturity term structure about future inflation," Journal of International Money and Finance, Elsevier, vol. 10(1), pages 2-22, March.
- Engsted, Tom, 1995. "Does the Long-Term Interest Rate Predict Future Inflation? A Multi-country Analysis," The Review of Economics and Statistics, MIT Press, vol. 77(1), pages 42-54, February.
- Papell, David H, 1994. "Exchange Rates and Prices: An Empirical Analysis," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(2), pages 397-410, May.
- Jeffrey C. Fuhrer, 1995. "The Phillips curve is alive and well," New England Economic Review, Federal Reserve Bank of Boston, issue Mar, pages 41-56.
- Arthur M. Okun, 1975. "Inflation: Its Mechanics and Welfare Costs," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 6(2), pages 351-402.
- Geoffrey M.B. Tootell, 1994. "Restructuring, the NAIRU, and the Phillips curve," New England Economic Review, Federal Reserve Bank of Boston, issue Sep, pages 31-44.
- Robertson, Donald, 1992. "Term Structure Forecasts of Inflation," Economic Journal, Royal Economic Society, vol. 102(414), pages 1083-1093, September.
- Crowder, William J, 1998. "The Long-Run Link between Money Growth and Inflation," Economic Inquiry, Western Economic Association International, vol. 36(2), pages 229-243, April.
- George A. Kahn, 1987. "Dollar depreciation and inflation," Economic Review, Federal Reserve Bank of Kansas City, issue Nov, pages 32-49.
- Peter A. Abken, 1993. "Inflation and the yield curve," Economic Review, Federal Reserve Bank of Atlanta, issue May, pages 13-31.
When requesting a correction, please mention this item's handle: RePEc:fip:fedker:y:2001:i:qiii:p:5-42:n:v.86no.3. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (LDayrit)
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.