Abstract

http://ssrn.com/abstract=1711020
 
 

Citations (2)



 


 



Are Central Banks' Projections Meaningful?


Jordi Galí


Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI); Massachusetts Institute of Technology (MIT) - Department of Economics; Centre for Economic Policy Research (CEPR); National Bureau of Economic Research (NBER)

September 2010

CEPR Discussion Paper No. DP8027

Abstract:     
Central banks' projections - i.e. forecasts conditional on a given interest rate path - are often criticized on the grounds that their underlying policy assumptions are inconsistent with the existence of a unique equilibrium in many forward-looking models. Here I describe three alternative approaches to constructing projections that are not subject to the above criticism, using two different versions of New Keynesian model as reference frameworks. Most importantly, I show how the three approaches generate different projections for inflation and output, even though they imply an identical path for the interest rate. The latter result calls into question the meaning and usefulness of such projections.

Number of Pages in PDF File: 32

Keywords: conditinal forecats, constant interest rate projections, inflation targeting, interest rate path, interest rate rules, multiple equilibria

JEL Classification: E37, E58

working papers series





Date posted: November 22, 2010  

Suggested Citation

Galí, Jordi, Are Central Banks' Projections Meaningful? (September 2010). CEPR Discussion Paper No. DP8027. Available at SSRN: http://ssrn.com/abstract=1711020

Contact Information

Jordi Gali (Contact Author)
Universitat Pompeu Fabra - Centre de Recerca en Economia Internacional (CREI) ( email )
Ramon Trias Fargas, 25-27
Barcelona, 08005
Spain
+34 93 542 2754 (Phone)
+34 93 542 1746 (Fax)
HOME PAGE: http://www.econ.upf.es/~gali
Massachusetts Institute of Technology (MIT) - Department of Economics ( email )
50 Memorial Drive
Cambridge, MA 02142
United States
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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