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Expectations, Taylor Rules, and Credibility – Evidence from Four Small Open European Economies with Independent Central Banks

Listed author(s):
  • Ralf Fendel
  • Michael Frenkel
  • Jan-Christoph Rülke

    ()

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    This paper analyzes the expectation formation process in Denmark, Norway, Sweden and Switzerland. We use the Consensus Economic Forecast poll and show that the forecasts are consistent with Taylor-type rules for three countries but not for Norway. This can be attributed to Norway's long period of an exchange rate targetor. Additionally, we provide evidence that the expected long-term infl ation rate is consistent with both the actual average in flation rate and the infl ation target for all countries. This implies that the professional forecasters understand the di erent monetary policy strategies among the four countries indicating that all central banks can be regarded as highly credible.

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    File URL: https://www.whu.edu/fileadmin/data/RePEc/PDF/WP-09-02.pdf
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    Paper provided by WHU - Otto Beisheim School of Management in its series WHU Working Paper Series - Economics Group with number 09-02.

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    Length: 29 pages
    Date of creation: Jul 2009
    Handle: RePEc:whu:wpaper:09-02
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    Web page: https://www.whu.edu/en/faculty-research/economics-group/

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    1. Richard Clarida & Jordi Galí & Mark Gertler, 2000. "Monetary Policy Rules and Macroeconomic Stability: Evidence and Some Theory," The Quarterly Journal of Economics, Oxford University Press, vol. 115(1), pages 147-180.
    2. Beck, Roland, 2001. "Do country fundamentals explain emerging market bond spreads?," CFS Working Paper Series 2001/02, Center for Financial Studies (CFS).
    3. Pedroni, Peter, 2004. "Panel Cointegration: Asymptotic And Finite Sample Properties Of Pooled Time Series Tests With An Application To The Ppp Hypothesis," Econometric Theory, Cambridge University Press, vol. 20(03), pages 597-625, June.
    4. Mitchell, Karlyn & Pearce, Douglas K., 2007. "Professional forecasts of interest rates and exchange rates: Evidence from the Wall Street Journal's panel of economists," Journal of Macroeconomics, Elsevier, vol. 29(4), pages 840-854, December.
    5. Joel T. Krueger & Kenneth N. Kuttner, 1996. "The Fed funds futures rate as a predictor of federal reserve policy," Journal of Futures Markets, John Wiley & Sons, Ltd., vol. 16(8), pages 865-879, December.
    6. Clarida, Richard & Gali, Jordi & Gertler, Mark, 1998. "Monetary policy rules in practice Some international evidence," European Economic Review, Elsevier, vol. 42(6), pages 1033-1067, June.
    7. Ralf M. Fendel & Michael R. Frenkel, 2006. "Five Years Of Single European Monetary Policy In Practice: Is The Ecb Rule-Based?," Contemporary Economic Policy, Western Economic Association International, vol. 24(1), pages 106-115, 01.
    8. Glenn D. Rudebusch, 2006. "Monetary Policy Inertia: Fact or Fiction?," International Journal of Central Banking, International Journal of Central Banking, vol. 2(4), December.
    9. Richard H. Clarida & Jordi Gali & Mark Gertler, 1998. "Monetary policy rules in practice," Proceedings, Federal Reserve Bank of San Francisco, issue Mar.
    10. John B. Taylor, 1999. "A Historical Analysis of Monetary Policy Rules," NBER Chapters,in: Monetary Policy Rules, pages 319-348 National Bureau of Economic Research, Inc.
    11. Keane, Michael P & Runkle, David E, 1990. "Testing the Rationality of Price Forecasts: New Evidence from Panel Data," American Economic Review, American Economic Association, vol. 80(4), pages 714-735, September.
    12. Pedroni, Peter, 1999. " Critical Values for Cointegration Tests in Heterogeneous Panels with Multiple Regressors," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 61(0), pages 653-670, Special I.
    13. Dovern, Jonas & Weisser, Johannes, 2008. "Are they really rational? Assessing professional macro-economic forecasts from the G7-countries," Kiel Working Papers 1447, Kiel Institute for the World Economy (IfW).
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