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How forward looking are central banks? Some evidence from their forecasts

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Abstract

We estimate forward-looking Taylor rules on data from macroeconomic forecasts of three central banks (Bank of England, National Bank of Poland and Swiss National Bank) in order to determine the extent to which these banks are forward looking in their monetary policy decisions. We find that all three banks are to some extent forward-looking, however to a varying degree. With respect to inflation, the NBP and the SNB look far into the future, while the BoE seems to concentrate on current inflation. As to output, the BoE and the SNB take into account its future or current value while for the NBP this variable is insignificant. We also find that central banks prefer to concentrate on one particular horizon rather than take into account the whole forecast.

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  • Michał Brzoza-Brzezina & Jacek Kotłowski & Agata Miśkowiec, 2012. "How forward looking are central banks? Some evidence from their forecasts," NBP Working Papers 112, Narodowy Bank Polski, Economic Research Department.
  • Handle: RePEc:nbp:nbpmis:112
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    References listed on IDEAS

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    1. Nicoletta Batini & Paul Levine & Joseph Pearlman, 2003. "Indeterminacy with inflation-forecast-cased rules in a two-bloc model," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
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    6. Kai Carstensen, 2006. "Estimating the ECB Policy Reaction Function," German Economic Review, Verein für Socialpolitik, vol. 7, pages 1-34, February.
    7. Leitemo, Kai, 2008. "Inflation-targeting rules: History-dependent or forward-looking?," Economics Letters, Elsevier, vol. 100(2), pages 267-270, August.
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    Cited by:

    1. Aleksandra Halka, 2016. "How the central bank’s reaction function in small open economies evolved during the crisis," Bank i Kredyt, Narodowy Bank Polski, vol. 47(4), pages 301-318.
    2. Aleksandra Halka, 2015. "Lessons from the crisis.Did central banks do their homework?," NBP Working Papers 224, Narodowy Bank Polski, Economic Research Department.
    3. Maciej Ryczkowski, 2016. "Poland as an inflation nutter:The story of successful output stabilization," Zbornik radova Ekonomskog fakulteta u Rijeci/Proceedings of Rijeka Faculty of Economics, University of Rijeka, Faculty of Economics, vol. 34(2), pages 363-392.

    More about this item

    Keywords

    Taylor rule; forward-looking monetary policy; feedback horizon;

    JEL classification:

    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • 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

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