The Effects of a Central Bank's Inflation Forecasts on Private Sector Forecasts: Recent Evidence from Japan

31 Pages Posted: 4 Oct 2016

See all articles by Masazumi Hattori

Masazumi Hattori

Hitotsubashi University

Steven Kong

Hong Kong Monetary Authority

Frank Packer

Bank for International Settlements (BIS)

Toshitaka Sekine

Bank of Japan - Research and Statistics Department

Date Written: September 2016

Abstract

How central banks can best communicate to the market is an increasingly important topic in the central banking literature. With ever greater frequency, central banks communicate to the market through the forecasts of prices and output with the purposes of reducing uncertainty; at the same time, central banks generally rely on a publicly stated medium-term inflation target to help anchor expectations. This paper aims to document how much the release of the forecasts of one major central bank, the Bank of Japan (BOJ), has influenced private sector expectations of inflation, and whether the degree of influence depends to any degree on the adoption of an inflation target (IT). Consistent with earlier studies, we find the central bank's forecasts to be quite influential on private sector forecasts. In the case of next year forecasts, their impact continues into the IT regime. Thus, the difficulties of aiming at an inflation target from below do not necessarily diminish the influence of the central bank's inflation forecasts.

Keywords: central bank communication, Bank of Japan, inflation forecast, inflation targeting

JEL Classification: E31, E52, E58

Suggested Citation

Hattori, Masazumi and Kong, Steven and Packer, Frank and Sekine, Toshitaka, The Effects of a Central Bank's Inflation Forecasts on Private Sector Forecasts: Recent Evidence from Japan (September 2016). BIS Working Paper No. 585. Available at SSRN: https://ssrn.com/abstract=2844199

Masazumi Hattori (Contact Author)

Hitotsubashi University ( email )

2-1 Naka Kunitachi-shi
Tokyo 186-8601
Japan

Steven Kong

Hong Kong Monetary Authority ( email )

3 Garden Road, 30th Floor
Hong Kong
Hong Kong

Frank Packer

Bank for International Settlements (BIS) ( email )

CH-4002 Basel, Basel-Stadt
Switzerland
4161 280 8449 (Phone)

Toshitaka Sekine

Bank of Japan - Research and Statistics Department ( email )

2-1-1 Hongoku-cho
Nihonbashi
Chuo-ku Tokyo 103-8660
Japan
+81 3 3279-1111 (Phone)
+81 3 5255-6758 (Fax)

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