Quantitative forward guidance through interest rate projections

Boris Hofmann and Fan Dora Xia

No 1009, BIS Working Papers from Bank for International Settlements

Abstract: We assess quantitative forward guidance provided through interest rate projections published by the Reserve Bank of New Zealand, the Norges Bank, the Swedish Riksbank and the Federal Reserve. We find that the interest rate projections help manage interest rate expectations. Market interest rates partially anticipate changes in the central bank projection path and adjust to path surprises, implying significant but incomplete predictability and credibility of the paths. We further find that the interest rate projections are not informationally redundant to central banks' macroeconomic projections. They impact market rates even when controlling for inflation and real activity projections. Finally, interest rate projections and macroeconomic projections turn out to be consistent with an inflation-stabilizing Taylor rule. The response of policy rates to inflation implied by the projections is significantly larger than one.

Keywords: forward guidance; interest rate projections; central bank communication (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2022-03
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:1009

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