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Revealing the secrets of the temple: the value of publishing central bank interest rate projections

  • Glenn D. Rudebusch
  • John C. Williams

The modern view of monetary policy stresses its role in shaping the entire yield curve of interest rates in order to achieve various macroeconomic objectives. A crucial element of this process involves guiding financial market expectations of future central bank actions. Recently, a few central banks have started to explicitly signal their future policy intentions to the public, and two of these banks have even begun publishing their internal interest rate projections. We examine the macroeconomic effects of direct revelation of a central bank's expectations about the future path of the policy rate. We show that, in an economy where private agents have imperfect information about the determination of monetary policy, central bank communication of interest rate projections can help shape financial market expectations and may improve macroeconomic performance.

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Paper provided by Federal Reserve Bank of San Francisco in its series Working Paper Series with number 2006-31.

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Date of creation: 2006
Handle: RePEc:fip:fedfwp:2006-31
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