Expectations, Taylor Rules, and Credibility – Evidence from Four Small Open European Economies with Independent Central Banks

Ralf Fendel, Michael Frenkel and Jan-Christoph Rülke ()

No 09-02, WHU Working Paper Series - Economics Group from WHU - Otto Beisheim School of Management

Abstract: This paper analyzes the expectation formation process in Denmark, Norway, Sweden and Switzerland. We use the Consensus Economic Forecast poll and show that the forecasts are consistent with Taylor-type rules for three countries but not for Norway. This can be attributed to Norway's long period of an exchange rate targetor. Additionally, we provide evidence that the expected long-term infl ation rate is consistent with both the actual average in flation rate and the infl ation target for all countries. This implies that the professional forecasters understand the di erent monetary policy strategies among the four countries indicating that all central banks can be regarded as highly credible.

Keywords: Taylor rule; expectation formation; monetary policy; Scandinavian economies (search for similar items in EconPapers)
JEL-codes: C33 D84 E52 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2009-07
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Persistent link: https://EconPapers.repec.org/RePEc:whu:wpaper:09-02

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