Monetary policy transparency and private sector forecasts: evidence from survey data
In recent years, central banks around the world have greatly increased the monetary policy information they have provided the public. The Federal Reserve has taken a number of actions to promote transparency including, most recently, the announcement of enhancements to the FOMC's (Federal Open Market Committee) economic forecasts that are released to the public. ; The movement toward increased transparency arises largely from the view that increased transparency has important benefits, including more effective monetary policy. This view is based on theoretical and empirical research that has emphasized the importance of public expectations about monetary policy as a key factor in determining interest rates and other asset prices. In particular, this research suggests that improved predictability of monetary policy may reduce the volatility of asset prices and make monetary policy more effective by increasing a central bank's leverage over longer-term interest rates. ; Sellon uses information from the Blue Chip Long Range Financial Forecasts to examine whether longer-horizon predictability has been associated with increased transparency. The analysis suggests several interesting conclusions. First, consistent with previous studies using futures data, there has been a marked reduction in survey forecast errors at short-term horizons. But, the survey data suggest there has been much less improvement at longer horizons. Second, to the extent private sector longer-horizon forecasts of future monetary policy have improved in recent years, most of the improvement occurred from 2003 to 2006, when the Federal Reserve provided more explicit guidance about the future path of the federal funds rate. During this period, forecast errors over all horizons dropped remarkably. Indeed, this period appears to have driven most of the improvement in the Blue Chip survey forecasts seen over the entire 1986-2007 sample period. Third, the survey evidence reported in this article does not support the finding of some studies that forecasting improved suddenly after 1994. Fourth, the longer-horizon forecast errors have been largest when policy was being actively tightened or eased, especially during the 1990-92 and 2001-03 periods of extended policy easing. Finally, longer-horizon forecast errors appear to have diminished during periods of tightening, but not during periods of easing.
Volume (Year): (2008)
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: |
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.:
- Richard Clarida & Jordi Galí & Mark Gertler, 2000.
"Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory,"
The Quarterly Journal of Economics,
Oxford University Press, vol. 115(1), pages 147-180.
- Richard Clarida & Jordi Galí & Mark Gertler, 1997. "Monetary policy rules and macroeconomic stability: Evidence and some theory," Economics Working Papers 350, Department of Economics and Business, Universitat Pompeu Fabra, revised May 1999.
- Clarida, Richard & Galí, Jordi & Gertler, Mark, 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," CEPR Discussion Papers 1908, C.E.P.R. Discussion Papers.
- Richard Clarida & Jordi Gali & Mark Gertler, 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," NBER Working Papers 6442, National Bureau of Economic Research, Inc.
- Clarida, R. & Gali, J. & Gertler, M., 1998. "Monetary Policy Rules and Macroeconomic Stability: Evidence and some Theory," Working Papers 98-01, C.V. Starr Center for Applied Economics, New York University.
- repec:fip:fedgsq:y:2007:i:nov14 is not listed on IDEAS
- 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.
- Hsu, Chiente & Kugler, Peter, 1997. "The Revival of the Expectations Hypothesis of the US Term Structure of Interest Rates," Economics Letters, Elsevier, vol. 55(1), pages 115-120, August.
- Lange, Joe & Sack, Brian & Whitesell, William, 2003. " Anticipations of Monetary Policy in Financial Markets," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(6), pages 889-909, December.
- Ben S. Bernanke, 2007. "Federal Reserve communications," Speech 344, Board of Governors of the Federal Reserve System (U.S.). Full references (including those not matched with items on IDEAS)
When requesting a correction, please mention this item's handle: RePEc:fip:fedker:y:2008:i:qiii:p:7-34:n:v.93no.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 references are entirely missing, you can add them using this form.