Central Bank Policy Paths and Market Forward Rates: A Simple Model
Riksbank Research Paper Series No. 127
Sveriges Riksbank Working Paper Series No. 303
45 Pages Posted: 13 Aug 2015
Date Written: June 2015
Abstract
Increasingly many central banks announce likely paths for future policy rates. Recent experience suggest that market forward rates can differ substantially from those announced. Models commonly adopted in policy analysis ignore such differences. This paper studies a simple model that can capture deviations between announced paths and market forward rates. We detail the macroeconomic transmission of such deviations both in the model and in the data and show how the model can inform policy deliberations.
Keywords: Policy path, forward rate, forward guidance
JEL Classification: E43, E44, E58
Suggested Citation: Suggested Citation