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The interest rate conditioning assumption

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  • Goodhart, Charles

Abstract

A central bank’s forecast must contain some assumption about the likely future path for its own policy-determined short-term interest rate. Most of those central banks who have publicly reported their procedures in this respect have assumed that interest rates would remain unchanged from their present level, e.g. in Sweden, in the USA (at least most of the time) (see, for Sweden, Berg, Jansson and Vredin, 2004; and Jansson and Vredin, 2003; and for the USA, Boivin, 2004; Reifschneider, Stockton and Wilcox, 1997; and Romer and Romer, 2004). The UK was amongst this group from the first Inflation Report, at the end of 1992, until May 2004; then in August 2004 it shifted to the use of the forward short rates that are implied by the money market yield curve.

Suggested Citation

  • Goodhart, Charles, 2015. "The interest rate conditioning assumption," LSE Research Online Documents on Economics 24666, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:24666
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    File URL: http://eprints.lse.ac.uk/24666/
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    References listed on IDEAS

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    Cited by:

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    2. Woodford, Michael, 2013. "Forward Guidance by Inflation-Targeting Central Banks," CEPR Discussion Papers 9722, C.E.P.R. Discussion Papers.
    3. Jan F. Qvigstad, 2006. "When does an interest rate path “look good”? Criteria for an appropriate future interest rate path," Working Paper 2006/05, Norges Bank.
    4. Michael Woodford, 2012. "Forecast Targeting as a Monetary Policy Strategy - Policy Rules in Practice," Book Chapters, in: Evan F. Koenig & Robert Leeson & George A. Kahn (ed.), The Taylor Rule and the Transformation of Monetary Policy, chapter 9, Hoover Institution, Stanford University.
    5. Westelius, Niklas J., 2009. "Imperfect transparency and shifts in the central bank's output gap target," Journal of Economic Dynamics and Control, Elsevier, vol. 33(4), pages 985-996, April.
    6. Svensson, Lars E.O., 2009. "Transparency under Flexible Inflation Targeting: Experiences and Challenges," CEPR Discussion Papers 7213, C.E.P.R. Discussion Papers.
    7. Alessandro Flamini, 2012. "Interest Rate Forecasts in Inflation Targeting Open-Economies," Economia politica, Società editrice il Mulino, issue 3, pages 381-408.
    8. Janine Aron & John Muellbauer, 2007. "Review of Monetary Policy in South Africa since 1994," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 16(5), pages 705-744, November.
    9. Pierre Gosselin & Aileen Lotz & Charles Wyplosz, 2008. "The Expected Interest Rate Path: Alignment of Expectations vs. Creative Opacity," International Journal of Central Banking, International Journal of Central Banking, vol. 4(3), pages 145-185, September.
    10. Muellbauer, John & Aron, Janine, 2006. "Review of Monetary Policy in South Africa: 1994-2004," CEPR Discussion Papers 5831, C.E.P.R. Discussion Papers.
    11. Iana Liadze & Ray Barrell & Professor E. Philip Davis, 2010. "Calibrating macroprudential policy," National Institute of Economic and Social Research (NIESR) Discussion Papers 354, National Institute of Economic and Social Research.
    12. Joyce, Michael & Relleen, Jonathan & Sorensen, Steffen, 2008. "Measuring monetary policy expectations from financial market instruments," Bank of England working papers 356, Bank of England.
    13. Lars E.O. Svensson, 2006. "The Instrument-Rate Projection under Inflation Targeting: The Norwegian Example," Working Papers 75, Princeton University, Department of Economics, Center for Economic Policy Studies..
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    15. Dovern, Jonas & Gern, Klaus-Jürgen & Oskamp, Frank & Sander, Birgit & Scheide, Joachim, 2006. "Konjunktur in den Industrieländern bleibt vorerst kräftig," Open Access Publications from Kiel Institute for the World Economy 3931, Kiel Institute for the World Economy (IfW Kiel).
    16. Lars E.O. Svensson, 2006. "The Instrument-Rate Projection under Inflation Targeting: The Norwegian Example," Working Papers 75, Princeton University, Department of Economics, Center for Economic Policy Studies..

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    JEL classification:

    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation

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