Coordinating expectations through central bank projections

Fatemeh Mokhtarzadeh and Luba Petersen
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Fatemeh Mokhtarzadeh: University of Victoria

Discussion Papers from Department of Economics, Simon Fraser University

Abstract: This paper explores how expectations are influenced by central bank projections within a learning-to-forecast laboratory macroeconomy. Subjects are incentivized to forecast output and inflation in a laboratory macroeconomy where their aggregated expectations directly influence macroeconomic dynamics. Using a between-subject design, we systematically vary whether the central bank communicates no information, ex-ante rational nominal interest rate projections, or rational or adaptive dual projections of output and inflation. Our experimental findings suggest that interest rate projections and adaptive dual projections can encourage backward-looking forecasting behavior. Expectations are best coordinated and stabilized by communicating rational output and inflation forecasts.

Keywords: expectations; monetary policy; projections; communication; credibility; laboratory experiment; experimental macroeconomics (search for similar items in EconPapers)
JEL-codes: C9 D84 E52 E58 (search for similar items in EconPapers)
Pages: 41
Date: 2017-02
New Economics Papers: this item is included in nep-cba, nep-exp, nep-for, nep-mac and nep-mon
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Citations: View citations in EconPapers (17)

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