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When is Lift-Off? Evaluating Forward Guidance from the Shadow

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  • Matthias Neuenkirch
  • Pierre Siklos

Abstract

We examine the record of the CD Howe’s shadow Monetary Policy Council (SMPC) in Canada. We report a considerable diversity of opinion about the recommended future path of interest rates inside the SMPC. During the period of Bank of Canada forward guidance, market determined forward rates diverge considerably from the recommendations implied by the SMPC. Nevertheless, there is little evidence that the Bank of Canada and the SMPC coordinate their future views about the interest rate path. Finally, changes in views about future changes in policy rates for horizons beyond the next two interest rate decisions are difficult to explain. Our findings imply that there remain challenges in understanding the evolution of future interest rate paths over time. We conclude with some policy implications. Copyright Springer Science+Business Media New York 2014

Suggested Citation

  • Matthias Neuenkirch & Pierre Siklos, 2014. "When is Lift-Off? Evaluating Forward Guidance from the Shadow," Open Economies Review, Springer, vol. 25(5), pages 819-839, November.
    • Handle: RePEc:kap:openec:v:25:y:2014:i:5:p:819-839
    DOI: 10.1007/s11079-014-9328-6
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    1. Neuenkirch, Matthias & Siklos, Pierre L., 2013. "What's in a second opinion? Shadowing the ECB and the Bank of England," European Journal of Political Economy, Elsevier, vol. 32(C), pages 135-148.
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    3. Clemens J. M. Kool & Daniel L. Thornton, 2015. "How Effective Is Central Bank Forward Guidance?," Review, Federal Reserve Bank of St. Louis, vol. 97(4), pages 303-322.
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    7. Pierre L. Siklos & Matthias Neuenkirch, 2015. "How Monetary Policy Is Made: Two Canadian Tales," International Journal of Central Banking, International Journal of Central Banking, vol. 11(1), pages 225-250, January.
    8. Balázs Égert, 2010. "The Impact of Monetary and Commodity Fundamentals, Macro News and Central Bank Communication on the Exchange Rate: Evidence from South Africa," Open Economies Review, Springer, vol. 21(5), pages 655-677, November.
    9. Siklos, Pierre L. & Sturm, Jan-Egbert (ed.), 2013. "Central Bank Communication, Decision Making, and Governance: Issues, Challenges, and Case Studies," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262018934, April.
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    12. Siklos,Pierre L. & Bohl,Martin T. & Wohar,Mark E. (ed.), 2010. "Challenges in Central Banking," Cambridge Books, Cambridge University Press, number 9780521199292, October.
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    14. Zhongfang He, 2010. "Evaluating the Effect of the Bank of Canada's Conditional Commitment Policy," Discussion Papers 10-11, Bank of Canada.
    15. Taylor, John B., 1993. "Discretion versus policy rules in practice," Carnegie-Rochester Conference Series on Public Policy, Elsevier, vol. 39(1), pages 195-214, December.
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    Cited by:

    1. Pierre L. Siklos & Matthias Neuenkirch, 2015. "How Monetary Policy Is Made: Two Canadian Tales," International Journal of Central Banking, International Journal of Central Banking, vol. 11(1), pages 225-250, January.
    2. Pierre Siklos & Matthias Neuenkirch, 2014. "Good Governance of Monetary Policy in Canada: Lessons from the C.D. Howe Institute’s Shadow Council," e-briefs 188, C.D. Howe Institute.
    3. Detmers, Gunda-Alexandra, 2016. "Forward Guidance under Disagreement - Evidence from the Fed’s dot projections," VfS Annual Conference 2016 (Augsburg): Demographic Change 145768, Verein für Socialpolitik / German Economic Association.
    4. Maciej Ryczkowski, 2017. "Forward Guidance, Pros, Cons and Credibility," Prague Economic Papers, Prague University of Economics and Business, vol. 2017(5), pages 523-541.

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    More about this item

    Keywords

    Bank of Canada; Central bank communication; Forward guidance; Monetary policy committees; Shadow councils; Taylor rules; E43; E52; E58; E61; E69;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination
    • E69 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Other

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