Does Publication of Interest Rate Paths Provide Guidance?
42 Pages Posted: 5 Dec 2018 Last revised: 19 Jun 2020
Date Written: June 22, 2018
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: Suggested Citation