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Central Bank Communication and Disagreement about the Natural Rate Hypothesis

Carola Binder ()

International Journal of Central Banking, 2021, vol. 17, issue 2, 81-123

Abstract: About half of professional forecasters report that they use the natural rate of unemployment (u∗) to forecast. I show that forecasters' reported use of and estimates of u∗ are informative about their expectations-formation process, including their use of a Phillips curve. Those who report not using u∗ have higher and less anchored inflation expectations, and seem to have found the Federal Reserve's state-based forward guidance less credible. The Federal Open Market Committee (FOMC) publishes participants' projections of longer-run unemployment in the Summary of Economic Projections. I document how and when the FOMC participants have disagreed with each other and with the private sector, discussing possible sources of disagreement and implications for credibility.

JEL-codes: D83 D84 E43 E52 E58 (search for similar items in EconPapers)
Date: 2021
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International Journal of Central Banking is currently edited by Loretta J. Mester

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