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Are Central Banks' Projections Meaningful?

  • Jordi Gali

    (CREI)

Registered author(s):

    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.

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    File URL: https://economicdynamics.org/meetpapers/2008/paper_174.pdf
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    Paper provided by Society for Economic Dynamics in its series 2008 Meeting Papers with number 174.

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    Date of creation: 2008
    Date of revision:
    Handle: RePEc:red:sed008:174
    Contact details of provider: Postal:
    Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

    Web page: http://www.EconomicDynamics.org/society.htm
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