The Central Banking Beauty Contest

Gonzalo Cisternas and Aaron Kolb ()
Additional contact information
Gonzalo Cisternas: https://www.newyorkfed.org/research/economists/cisternas
Aaron Kolb: https://kelley.iu.edu/faculty-research/faculty-directory/profile.html?id=KOLBA

No 20240930, Liberty Street Economics from Federal Reserve Bank of New York

Abstract: Expectations can play a significant role in driving economic outcomes, with central banks factoring market sentiment into policy decisions and market participants forming their own assumptions about monetary policy. But how well do central banks understand the expectations of market participants—and vice versa? Our model, developed in a recent paper, features a dynamic game between (i) a monetary authority that cannot commit to an inflation target and (ii) a set of market participants that understand the incentives created by that credibility problem. In this post, we describe the game, a type of Keynesian beauty contest: its main novelty is that each side attempts, with varying degrees of accuracy, to forecast the other’s beliefs, resulting in new findings regarding the levels and trajectories of inflation.

Keywords: central banks; credibility; forecasts (search for similar items in EconPapers)
JEL-codes: D82 E5 (search for similar items in EconPapers)
Date: 2024-09-30
New Economics Papers: this item is included in nep-ban, nep-cba, nep-gth and nep-mon
References: Add references at CitEc
Citations:

Downloads: (external link)
https://libertystreeteconomics.newyorkfed.org/2024 ... king-beauty-contest/ Full text (text/html)

Related works:
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:fip:fednls:98892

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Liberty Street Economics from Federal Reserve Bank of New York Contact information at EDIRC.
Bibliographic data for series maintained by Gabriella Bucciarelli ().