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Rationalizing the Bias in Central Banks' Interest Rate Projections

Listed author(s):
  • Michael Frenkel
  • Jin-Kyu Jung
  • Jan-Christoph Rülke

    ()

Registered author(s):

    In this paper, we study the bias in interest rate projections for four central banks, namely for Czech Republic, New Zealand, Norway, and Sweden. We examine whether central bank projections are based on an asymmetric loss function and report evidence that central banks perceive an overprojection of their longer-term interest rate forecasts as twice as costly as an underprojection of the same size. We document that rationality is consistent with biased interest rate projections which contribute to explaining the central banks’ behavior.

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    File URL: https://nbn-resolving.org/urn:nbn:de:hbz:992-opus4-4041
    File Function: First version, 2017
    Download Restriction: no

    Paper provided by WHU - Otto Beisheim School of Management in its series WHU Working Paper Series - Economics Group with number 17-03.

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    Length: 26 pages
    Date of creation: 26 Apr 2017
    Handle: RePEc:whu:wpaper:17-03
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    1. Michael Frenkel & Jan‐C. Rülke & Lilli Zimmermann, 2012. "Do Current Account Forecasters Herd? Evidence from the Euro Area and the G7 Countries," Review of International Economics, Wiley Blackwell, vol. 20(2), pages 221-236, May.
    2. Gunda-Alexandra Detmers & Dieter Nautz, 2012. "The Information Content of Central Bank Interest Rate Projections: Evidence from New Zealand," The Economic Record, The Economic Society of Australia, vol. 88(282), pages 323-329, September.
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    6. Dovern, Jonas, 2015. "A multivariate analysis of forecast disagreement: Confronting models of disagreement with survey data," European Economic Review, Elsevier, vol. 80(C), pages 16-35.
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    8. Fritsche, Ulrich & Pierdzioch, Christian & Rülke, Jan-Christoph & Stadtmann, Georg, 2015. "Forecasting the Brazilian real and the Mexican peso: Asymmetric loss, forecast rationality, and forecaster herding," International Journal of Forecasting, Elsevier, vol. 31(1), pages 130-139.
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    21. P. Gosselin & A. Lotz & C. Wyplosz, 2008. "When Central Banks Reveal Future Interest Rates: Alignment of Expectations Vs. Creative Opacity," Post-Print hal-00383304, HAL.
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