What Explains Monetary Policy Rate Uncertainty? Evidence from the Americas

Abstract

Monetary policy rate uncertainty is important to assess central bank credibility. Using Consensus Forecasts, we compute uncertainty regarding outcomes based on the sum of disagreement across forecasters and the error variance of the mean forecaster. We find that monetary policy rate uncertainty in the near term (3 months ahead) and short term (12 months ahead) is strongly associated with higher uncertainty regarding the inflation rate in the next year. The result is significant across all countries in the medium term. Inflation uncertainty is a much more powerful predictor of monetary policy uncertainty than GDP growth uncertainty, both in near and medium term.

Keywords: Disagreement, Uncertainty, Forecasting, Survey Expectations, Monetary policy