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The interaction between the Bank of England's forecasts and policy, and the outturn

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  • Goodhart, Charles

Abstract

There are long, (and often variable), lags between a change in interest rates and its effect on real output and inflation. Hence policy should be based on forecasts, (King 2000). So the eventual out-turn, e.g. for output and inflation, is a complex combination of the skills of the forecaster, the response of the policy-makers to the forecasts (and to their other, possibly private, sources of information), and the impact of shocks which were unforeseen at the time of the forecast. The aim of this paper is to try to disentangle this mixture in the particular case of the Bank of England, and thereby to assess the skills of the forecasters, the adequacy of the response of the monetary authorities, and the time path of shocks which were unanticipated at the time of the original forecasts.

Suggested Citation

  • Goodhart, Charles, 2004. "The interaction between the Bank of England's forecasts and policy, and the outturn," LSE Research Online Documents on Economics 24710, London School of Economics and Political Science, LSE Library.
    • Handle: RePEc:ehl:lserod:24710
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    File URL: http://eprints.lse.ac.uk/24710/
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    References listed on IDEAS

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    1. Charles Bean, 2003. "Asset Prices, Financial Imbalances and Monetary Policy: Are Inflation Targets Enough?," RBA Annual Conference Volume (Discontinued), in: Anthony Richards & Tim Robinson (ed.),Asset Prices and Monetary Policy, Reserve Bank of Australia.
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    5. Rudebusch, Glenn D., 2002. "Term structure evidence on interest rate smoothing and monetary policy inertia," Journal of Monetary Economics, Elsevier, vol. 49(6), pages 1161-1187, September.
    6. Buiter, Willem H, 1984. "Granger-Causality and Policy Effectiveness," Economica, London School of Economics and Political Science, vol. 51(202), pages 151-162, May.
    7. Gregory R. Duffee, 2002. "Term Premia and Interest Rate Forecasts in Affine Models," Journal of Finance, American Finance Association, vol. 57(1), pages 405-443, February.
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    Cited by:

    1. Peter Tulip, 2005. "Has output become more predictable? changes in Greenbook forecast accuracy," Finance and Economics Discussion Series 2005-31, Board of Governors of the Federal Reserve System (U.S.).

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    JEL classification:

    • G00 - Financial Economics - - General - - - General

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