Does Publication of Interest Rate Paths Provide Guidance?

42 Pages Posted: 5 Dec 2018 Last revised: 19 Jun 2020

See all articles by Gisle James James Natvik

Gisle James James Natvik

BI Norwegian Business School - Department of Economics

Dagfinn Rime

BI Norwegian Business School

Olav Syrstad

Norges Bank

Date Written: June 22, 2018

Abstract

Does the central bank practice of publishing interest rate projections (IRPs) improve how market participants map new information into future interest rates? Using high-frequency data on forward rate agreements (FRAs) 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, communication of future policy plans do not improve markets’ response to information, irrespective of whether or not IRPs are in place. A decomposition of market reactions into responses to the current monetary policy action (“target”) and responses to signals about the future

Keywords: monetary policy, interest rate paths, forward guidance, high-frequency data, forecasts

JEL Classification: D72, O13, Q33

Suggested Citation

Natvik, Gisle James James and Rime, Dagfinn and Syrstad, Olav, Does Publication of Interest Rate Paths Provide Guidance? (June 22, 2018). Journal of International Money and Finance, Volume 103, May 2020, 102123., Available at SSRN: https://ssrn.com/abstract=3279149 or http://dx.doi.org/10.2139/ssrn.3279149

Gisle James James Natvik

BI Norwegian Business School - Department of Economics ( email )

Nydalsveien 37
Oslo, 0484
Norway

Dagfinn Rime

BI Norwegian Business School ( email )

Nydalsveien 37
Oslo, 0442
Norway
+47-46410507 (Phone)

HOME PAGE: http://home.bi.no/dagfinn.rime/

Olav Syrstad (Contact Author)

Norges Bank ( email )

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

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