Do central banks respond timely to developments in the global economy?

Hilde Bjørnland (), Leif Thorsrud and Sepideh Khayati Zahiri

CAMA Working Papers from Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University

Abstract: Our analysis suggests; they do not! To arrive at this conclusion we construct a real-time data set of interest rate projections from central banks in three small open economies; New Zealand, Norway, and Sweden, and analyze if revisions to these projections (i.e., forward guidance) can be predicted by timely information. Doing so, we find a systematic role for forward looking international indicators in predicting the revisions to the interest rate projections in all countries. In contrast, using similar indexes for the domestic economy yields largely insignificant results. Furthermore, we find that revisions to forward guidance matter. Using a VAR identified with external instruments based on forecast errors from the predictive regressions, we show that the responses to output, inflation, the exchange rate and asset returns resemble those one typically associates with a conventional monetary policy shock.

Keywords: Monetary policy; interest rate path; forecast revisions and global indicators (search for similar items in EconPapers)
JEL-codes: C11 C53 C55 E58 F17 (search for similar items in EconPapers)
Pages: 44 pages
Date: 2017-03
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Citations: View citations in EconPapers (1)

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https://cama.crawford.anu.edu.au/sites/default/fil ... _thorsrud_zahiri.pdf (application/pdf)

Related works:
Journal Article: Do Central Banks Respond Timely to Developments in the Global Economy? (2020)
Working Paper: Do central banks respond timely to developments in the global economy? (2016)
Working Paper: Do central banks respond timely to developments in the global economy? (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:een:camaaa:2017-20

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