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Are Central Banks' Projections Meaningful?

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  • Jordi Gali

    (CREI)

Abstract

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.

Suggested Citation

  • Jordi Gali, 2008. "Are Central Banks' Projections Meaningful?," 2008 Meeting Papers 174, Society for Economic Dynamics.
  • Handle: RePEc:red:sed008:174
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    References listed on IDEAS

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    Cited by:

    1. Bing Tong & Guang Yang, 2020. "A Fixed-Interest-Rate New Keynesian Model of China," CFDS Discussion Paper Series 2020/1, Center for Financial Development and Stability at Henan University, Kaifeng, Henan, China.
    2. Malte Knüppel & Guido Schultefrankenfeld, 2017. "Interest rate assumptions and predictive accuracy of central bank forecasts," Empirical Economics, Springer, vol. 53(1), pages 195-215, August.
    3. Stefan Laséen & Lars E.O. Svensson, 2009. "Anticipated Alternative Instrument-Rate Paths in Policy Simulations," NBER Working Papers 14902, National Bureau of Economic Research, Inc.
    4. Blake, Andrew, 2012. "Fixed interest rates over finite horizons," Bank of England working papers 454, Bank of England.
    5. Monica Jain & Christopher S. Sutherland, 2020. "How Do Central Bank Projections and Forward Guidance Influence Private-Sector Forecasts?," International Journal of Central Banking, International Journal of Central Banking, vol. 16(5), pages 179-218, October.
    6. Bing Tong, 2020. "Capacity Reduction Policy Under the Interest Rate Peg in China," CFDS Discussion Paper Series 2020/2, Center for Financial Development and Stability at Henan University, Kaifeng, Henan, China.
    7. Guido Schultefrankenfeld, 2020. "Appropriate monetary policy and forecast disagreement at the FOMC," Empirical Economics, Springer, vol. 58(1), pages 223-255, January.
    8. Klaus Neusser, 2018. "The New Keynesian Model with Stochastically Varying Policies," Diskussionsschriften dp1801, Universitaet Bern, Departement Volkswirtschaft.
    9. Neusser, Klaus, 2019. "Time–varying rational expectations models," Journal of Economic Dynamics and Control, Elsevier, vol. 107(C), pages 1-1.
    10. Rochelle M. Edge & Refet S. Gürkaynak, 2011. "How useful are estimated DSGE model forecasts?," Finance and Economics Discussion Series 2011-11, Board of Governors of the Federal Reserve System (U.S.).

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    More about this item

    JEL classification:

    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications
    • 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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