Stale forward guidance

Gunda-Alexandra Detmers and Dieter Nautz

No 2014-027, SFB 649 Discussion Papers from Humboldt University Berlin, Collaborative Research Center 649: Economic Risk

Abstract: An increasing number of central banks manage market expectations via interest rate projections. Typically, those projections are updated only quarterly and thus, may become stale when new information enters the market. We use data from New Zealand to investigate the time-varying and state-dependent effects of interest rate projections on market expectations and interest rate uncertainty. Confirming the stabilizing effect of fresh central bank announcements, we show that interest rate uncertainty rises between two projection releases. Moreover, rate uncertainty and the importance of macroeconomic news increase if expectations deviate from the rate projected by the central bank. Counterfactual analysis suggests that the efficiency of projections would improve if the central bank updated its projection whenever it becomes stale.

Keywords: Central bank interest rate projections; central bank communication; quantitative forward guidance; interest rate uncertainty (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Date: 2014
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
https://www.econstor.eu/bitstream/10419/103796/1/786039981.pdf (application/pdf)

Related works:
Journal Article: Stale forward guidance (2014)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:zbw:sfb649:sfb649dp2014-027

Access Statistics for this paper

More papers in SFB 649 Discussion Papers from Humboldt University Berlin, Collaborative Research Center 649: Economic Risk Contact information at EDIRC.
Bibliographic data for series maintained by ZBW - Leibniz Information Centre for Economics ().