The Atlanta Fed's macroblog provides commentary and analysis on economic topics including monetary policy, macroeconomic developments, inflation, labor economics, and financial issues.
- BLS Handbook of Methods
- Bureau of Economic Analysis
- Bureau of Labor Statistics
- Congressional Budget Office
- Economic Data - FRED® II, St. Louis Fed
- Office of Management and Budget
- Statistics: Releases and Historical Data, Board of Governors
- U.S. Census Bureau Economic Programs
- White House Economic Statistics Briefing Room
January 31, 2007
Central Bank Forecasting
Sweden’s Riksbank, the world’s oldest central bank, has just joined a small group of institutions with a no-nonsense solution: policymakers publish a forecast of where they expect to set interest rates in the future. This is not as radical as it sounds. If they are competent, they should have a view. And it forms another step towards transparency. Europe’s central banks once made inflation forecasts on the assumption of constant interest rates – a pretty silly premise. Now the European Central Bank and BoE [Bank of England] assume a more realistic market yield curve. But they expend an inordinate amount of energy hinting at how plausible they believe that curve is. Far better just to say, explicitly, what they think.
Seems sensible, though the article contains a picture that does sort of suggest that such forecasts may not be all that useful:
I shouldn't push too hard on that picture because it really doesn't prove anything beyond the obvious point that forecasting is tough business. If a central bank's policy responses to its forecasts are consistent, there is plenty of information conveyed by those forecasts, even if they prove to be wildly off-base after the fact.
But I do have to object to the claim that an inflation forecast made "on the assumption of constant interest rates " is "a pretty silly premise." One might argue that the most sensible approach to policymaking is to take each meeting as it comes, without assuming too much about the shape of future policy to come. In other words, assume no change in policy, check out the forecasted path of inflation and whatever else you care about, and change things if the forecast deviates from the direction you hope things will go. Show up at the next meeting and repeat.
This has the benefit of pretty clearly revealing the central bank's objectives without emphasizing the path that will be taken to reach those objectives. And if you are wondering why a policymaker might want to emphasize the ends rather than the means, see the picture above.
You could still convince me that the assumption of a constant interest rate isn't the best way to go -- perhaps because information about how the central bank views the likely path of future policy really does help anchor expectations, for example. But silly? I'm thinking not.
TrackBack URL for this entry:
Listed below are links to blogs that reference Central Bank Forecasting :
- GDPNow's Second Quarter Forecast: Is It Too High?
- Are Small Loans Hard to Find? Evidence from the Federal Reserve Banks' Small Business Survey
- Slide into the Economic Driver's Seat with the Labor Market Sliders
- The Fed’s Inflation Goal: What Does the Public Know?
- Going to School on Labor Force Participation
- Bad Debt Is Bad for Your Health
- Working for Yourself, Some of the Time
- Gauging Firm Optimism in a Time of Transition
- Can Tight Labor Markets Inhibit Investment Growth?
- More Ways to Watch Wages
- May 2017
- April 2017
- March 2017
- February 2017
- January 2017
- December 2016
- November 2016
- October 2016
- September 2016
- August 2016
- Business Cycles
- Business Inflation Expectations
- Capital and Investment
- Capital Markets
- Data Releases
- Economic conditions
- Economic Growth and Development
- Exchange Rates and the Dollar
- Fed Funds Futures
- Federal Debt and Deficits
- Federal Reserve and Monetary Policy
- Financial System
- Fiscal Policy
- Health Care
- Inflation Expectations
- Interest Rates
- Labor Markets
- Latin America/South America
- Monetary Policy
- Money Markets
- Real Estate
- Saving, Capital, and Investment
- Small Business
- Social Security
- This, That, and the Other
- Trade Deficit
- Wage Growth