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The role of central bank forecasts in uncertain times

Author

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  • Jacek Kotłowski

    (Narodowy Bank Polski and Warsaw School of Economics)

Abstract

The macroeconomic projection is one of the key communication tools of the central bank. We examine how the projection published by Narodowy Bank Polski affects the expectations of the professional forecasters. We focus on the role of uncertainty in explaining the impact of inflation and GDP forecasts released by the central bank on the forecasters’ expectations. We find that by disclosing its projection the central bank affects the inflation and GDP forecasts formulated by professional forecasters for all the examined horizons: the current year, the next year and two years ahead. Importantly, our results show that the impact of the NBP projection on the expectations of the professional forecasters is stronger when uncertainty is high, which remains in line with the Woodford (2001) model, in which public information helps private agents to separate signal from noise contained in the data. We also evidence that the coordinating role of the projection for the private sector inflation forecasts is larger in high inflation environment.

Suggested Citation

  • Jacek Kotłowski, 2023. "The role of central bank forecasts in uncertain times," NBP Working Papers 363, Narodowy Bank Polski.
    • Handle: RePEc:nbp:nbpmis:363
    Note: The views expressed herein are ours and not necessarily those of Narodowy Bank Polski or the Warsaw School of Economics. We would like to thank the participants of the CFE and Money, Macro and Finance conferences as well as the participants of Senamek seminar at the Warsaw School of Economics for helpful comments and discussions. Comments received from an anonymous referee are gratefully acknowledged as well.
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    More about this item

    Keywords

    Monetary policy; central bank communication; forecasting; inflation expectations; uncertainty.;
    All these keywords.

    JEL classification:

    • C24 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Truncated and Censored Models; Switching Regression Models; Threshold Regression Models
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • 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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