Brzoza-Brzezina, Michal and Kot, Adam (2008): The Relativity Theory Revisited: Is Publishing Interest Rate Forecasts Really so Valuable?
Download (199Kb) | Preview
In a New Keynesian model with asymmetric information we show that publication of macroeconomic projections and of the future interest rate path by the central bank can improve macroeconomic outcomes. However, the gains from publishing interest rate paths are small relative to those from publishing macroeconomic projections. Given that most inflation targeting central banks are already publishing macroeconomic projections this means that most gains from increasing transparency in this area may already have been reaped. This, together with the potential costs, may explain the relative reluctance of central banks to publish interest rate paths.
|Item Type:||MPRA Paper|
|Original Title:||The Relativity Theory Revisited: Is Publishing Interest Rate Forecasts Really so Valuable?|
|Keywords:||interest rate path; monetary policy; adaptive learning|
|Subjects:||E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E43 - Interest Rates: Determination, Term Structure, and Effects
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E58 - Central Banks and Their Policies
E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy
|Depositing User:||Michal Brzoza-Brzezina|
|Date Deposited:||06. Sep 2008 09:21|
|Last Modified:||13. Feb 2013 22:54|
 Chortareas, G., Stasavage, D. and Sterne, G. (2002), Does It Pay To Be Transparent? Inter- national Evidence from Central Bank Forecasts, Federal Reserve Bank of St. Louis Review, July/ August
 van der Cruijsen, C. and Eijfinger, S. (2007), The Economic Impact of Central Bank Trans- parency: A Survey, CEPR Discussion Papers 6070.
 Cukierman, A. (2000), Establishing a Reputation for Dependability by Means of Inflation Targets, in: Lavan Mahadeva and Gabriel Sterne, eds., Monetary Frameworks in a Global Context. London: Routledge.
 Cukierman, A. and Meltzer, A. H. (1986), A Theory of Ambiguity, Credibility, and Inflation under Discretion and Asymmetric Information, Econometrica 54(5), 1099–1128.
 Dennis, R. and Ravenna, F. (2007), Learning and Optimal Monetary Policy, FRB of San Francisco Working Paper No. 2007-19.
 Eusepi, S. and Preston, B. (2007), Central Bank Communication and Expectations Stabiliza- tion, mimeo, Federal Resrve Bank of New York.
 Evans, G.W. and Honkapohja, S. (2001), Learning and Expectations in Macroeconomics. Princeton University Press, Princeton, New Jersey.
 Evans, G.W. and Honkapohja, S. (2006), Monetary Policy, Expectations and Commitment, Scandinavian Journal of Economics, Vol. 108, 2006, 15—38.
 Evans, G.W. and Honkapohja, S. (2007), Expectations, Learning and Monetary Policy: an Overview of Recent Research, Bank of Finland Research Discussion Papers 32.
 Evans, G.W. and McGough, B. (2005), Monetary Policy, Indeterminacy and Learning, Jour- nal of Economic Dynamics and Control, 29, 1809—1840.
 Evans, G.W. and McGough, B. (2006), Implementing Optimal Monetary Policy in New- Keynesian Models with Inertia, University of Oregon, Department of Economics Working Paper.
 Faust, J. and Leeper, E.M. (2005), Forecasts and Inflation Reports: An Evaluation, prepared for the Sveriges Riksbank conference “Inflation Targeting: Implementation, Communication and Effectiveness,” June 11-12 2005. 14
 Ferrero, G. Secchi, A. (2007), The Announcement of Future Policy Intentions, mimeo, Bank of Italy.
 Fracasso, A. Genberg, H.,Wyplosz, C. (2003), How do Central Banks Write? An Evaluation of Inflation Targeting Central Banks’, Geneva Reports on the World Economy, ICMBS, Geneva.
 Geraats, P.M. (2002), Central bank transparency, Economic Journal 112, F532—F565.
 Geraats, P.M. (2005), Transparency and Reputation: The Publication of Central Bank Fore- casts, Topics in Macroeconomics 5, 1—26.
 Gersbach, H. (2003), On the Negative social value of central bank’s knowledge transparency, Economics of Governance, 4, pp. 91-102.
 Giannoni, M.P. and Woodford M. (2005), Optimal Inflation Targeting Rules in ”The Infla- tion Targeting Debate”, Ben Bernanke and Michael Woodford (eds.), Chicago: University of Chicago Press.
 Goodfriend, M. (1986), Monetary Mystique: Secrecy and Central Banking, Journal of Mone- tary Economics 17, 63—92.
 Goodhart, C.A.E. (2001), Monetary Transmission Lags and the Formulation of the Policy Decision on Interest Rates, Federal Reserve Bank of St. Louis, Review (July/August): 165— 181
 Kahn, G.A. (2007), Communicating a policy path: the next frontier in central bank trans- parency?, Federal Reserve Bank of Kansas City, Economic Review, Q1.
 King, M. (2007), The MPC Ten Years On, Lecture delivered to the Society of Business Economists, 2 May 2007
 Muto, I. (2008), Monetary Policy and Learning from the Central Bank’s Forecast, Discussion Paper No. 2008-E-1, Bank of Japan.
 Orphanides, A. andWilliams, J.C. (2007), Robust Monetary Policy with Imperfect Knowledge, ECB Working Paper 764.
 Peek, J., Rosengren, E.S. and Tootell, G.M.B. (1998), Does the Federal Reserve Have an Informational Advantage? You Can Bank on It, Working Paper No. 98-2, Federal Reserve Bank of Boston, April.
 Romer, C.D. and Romer, D.H. (2000), Federal Reserve Information and the Behavior of Interest Rates, American Economic Review, June 2000, 90(3), pp. 429—57.
 Rudebusch, G.D. (2008), Publishing Central Bank Interest Rate Forecasts, Federal Reserve Bank of San Francisco Economic Letter, January 25, 2008.
 Rudebusch, G.D. and Williams, J.C. (2006), Revealing the Secrets of the Temple: The Value of Publishing Central Bank Interest Rate Projections, Federal Reserve Bank of San Francisco Working Paper 2006-31. 15
 Sims C.A. (2002), Solving Linear Rational Expectations Models, Computational Economics, Volume 20, Numbers 1-2, pp. 1-20.
 Smets, F. and Wouters, R. (2007), Shocks and Frictions in US Business Cycles: a Bayesian DSGE Approach, American Economic Review, 97 (3), 586–607.
 Sheridan N. (2003), Forming Inflation Expectations, John Hopkins University, mimeo, April.
 Tarkka, J. and Mayes, D. (1999), The Value of Publishing Official Central Bank Forecasts, Bank of Finland Discussion Paper 22/99.
 Taylor, John B. (1993), Discretion versus Policy Rules in Practice, Carnegie-Rochester Con- ference Series on Public Policy, 39, December, 195—214.
 deWalque, G. and Wouters, R. (2004), An Open Economy DSGE Model Linking the Euro Area and the US Economy, mimeo, National Bank of Belgium.
 Weber, A. (2007), How should central banks signal their intentions regarding future interest rates?, presentation at CFS conference ”The ECB and its watchers IX”, September 2007.
 Weltz, P. (2006), Assessing predetermined expectations in the standard sticky-price model: a Bayesian approach, ECB Working Paper 621, Frankfurt.
 Woodford, M. (2003), Interest and Prices, Princeton University Press, Princeton.