Too much central bank talk creates confusion
Lustenberger and Rossi use data from 73 countries from 1998 to 2014 to examine examine whether increased transparency and intensified communication by central banks affect the quality of private forecasts. They find that: a) more frequent communication increases both forecast errors and their dispersion; b) transparency does not improve the quality of private forecasts even though 50 central banks out of the 73 in their sample were either on or above their calculated level of “optimal transparency”.
Does Central Bank Transparency and Communication Affect Financial and Macroeconomic Forecasts?
Authors: Thomas Lustenberger, Enzo Rossi
From: Swiss National Bank
Tweaking the expectations component
Mark Gertler in this paper joins economists like Gabaix, Woodford and others who are trying to address the forward guidance puzzle by stepping outside the rational expectations hypothesis. He uses a simple New Keynesian model to introduce a hybrid adaptive/rational expectations belief mechanism: individuals have adaptive expectations about macro aggregates but make rational forecasts of policy given their understanding of what the policy rule is and the information they receive via the central bank communication. He argues that such a model is consistent with the evidence that central bank communication affects market interest rates.
Rethinking the Power of Forward Guidance: Lessons from Japan
Authors: Mark Gertler
From: New York University
The dynamics at the zero lower bound
Haberis and al. use a New Keynesian model to explore the effect of forward guidance at the zero lower bound when there is uncertainty over the lift-off date. They find that attempts to delay lift-off further may fail to generate additional stimulus if the temptation to renege on the announcement is sufficiently great.
Uncertain forward guidance
Authors: Alex Haberis, Richard Harrison and Matt Waldron
From: Bank of England
