Rationalizing the Bias in Central Banks' Interest Rate Projections

Michael Frenkel, Jin-Kyu Jung and Jan-Christoph Rülke ()

No 17-03, WHU Working Paper Series - Economics Group from WHU - Otto Beisheim School of Management

Abstract: 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.

Keywords: Interest rate forecasts; Central bank communication; Asymmetric loss (search for similar items in EconPapers)
JEL-codes: E43 E47 E58 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2017-04-26
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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https://nbn-resolving.org/urn:nbn:de:hbz:992-opus4-4041 First version, 2017 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:whu:wpaper:17-03

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