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|
|Date of revision:|
|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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