Are Central Banks' Projections Meaningful?
Central banks’ projections– i.e. forecasts conditional on a given interest rate path– are often criticized on the grounds that their underlying policy assumptions are inconsistent with the existence of a unique equilibrium in many forward-looking models. The present paper describes three alternative approaches to constructing projections that are not subject to that criticism, using a standard New Keynesian model as a reference framework. Yet, and even though they imply an identical path for the interest rate, the three approaches are shown to generate di¤erent projections for inflation and output. That result calls into question the meaning and usefulness of such projections.
|Date of creation:||2008|
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- Benhabib, Jess & Schmitt-Grohe, Stephanie & Uribe, Martin, 1998.
"The Perils of Taylor Rules,"
98-37, C.V. Starr Center for Applied Economics, New York University.
- Jess Benhabib & Stephanie Schmitt-Grohe & Martin Uribe, 1998. "The perils of Taylor Rules," Departmental Working Papers 199831, Rutgers University, Department of Economics.
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