Do Central Banks Respond Timely to Developments in the Global Economy?

44 Pages Posted: 19 Jan 2017

See all articles by Hilde C. Bjørnland

Hilde C. Bjørnland

Norwegian School of Management (BI); Norges Bank

Leif Anders Thorsrud

Norges Bank; BI Norwegian Business School

Sepideh Zahiri

BI Norwegian Business School

Multiple version iconThere are 2 versions of this paper

Date Written: December 22, 2016

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

JEL Classification: C11, C53, C55, E58, F17

Suggested Citation

Bjørnland, Hilde C. and Thorsrud, Leif Anders and Zahiri, Sepideh, Do Central Banks Respond Timely to Developments in the Global Economy? (December 22, 2016). Norges Bank Working Paper 19/2016. Available at SSRN: https://ssrn.com/abstract=2901425 or http://dx.doi.org/10.2139/ssrn.2901425

Hilde C. Bjørnland (Contact Author)

Norwegian School of Management (BI) ( email )

P.O. Box 580
N-1302 Sandvika
Norway

Norges Bank ( email )

P.O. Box 1179
Oslo, N-0107
Norway

Leif Anders Thorsrud

Norges Bank ( email )

P.O. Box 1179
Oslo, N-0107
Norway

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

Sepideh Zahiri

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway

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