Publication of Interest Rate Paths: Guidance?
32 Pages Posted: 5 Dec 2018
Date Written: June 22, 2018
Does the central bank practice of publishing interest rate projections (IRPs) improve market participants' interpretation of what new information implies for future interest rates? From high-frequent forward rate agreements we compute market forecast errors; differences between expected future interest rates and ex post realizations. We assess their change in narrow windows around monetary policy announcements and macroeconomic releases in Norway and Sweden. Overall, it does not seem that communication of future policy plans improves markets' response to information, irrespective of whether or not IRPs are in place. Decomposition of market reactions into "target" and "path" factors, separating monetary policy actions from signals about the future, reveals that when monetary policy announcements have improved market forecasts in Norway or Sweden, this has occurred via policy actions only.
Keywords: monetary policy, interest rate paths, forward guidance, high-frequency data, forecasts
JEL Classification: D72, O13, Q33
Suggested Citation: Suggested Citation