The Publication of Interest Rate Projections by the Central Banks of Norway and Sweden

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Abstract/Contents

Abstract: The publication of interest rate projections by central banks, a central bank’s own quantitative estimate of future interest rate decisions, is the newest and most controversial method of increasing transparency. Economists and central bankers disagree over whether or not publishing projections help the central bank manage private sector expectations. This paper examines if publishing interest rate projections by the central banks of Norway and Sweden improves the private sector’s ability to predict future interest rates. I investigate the effect of publishing projections on the root mean square error of money market forward rates and on changes in rates in response to interest rate decisions by the central bank. Using a New Keynesian macroeconomic model, I show that publishing projections should improve predictability if publishing provides the market with a clearer signal of future actions by the central bank. However, the empirical evidence suggests the effect of publishing projections may be negligible because interest rates were already relatively predictable and projections from both central banks have performed poorly during the financial crisis.

Type of resource	text
Date created	May 2009

Author	Walker, Michael
Primary advisor	Taylor, John B.
Degree granting institution	Stanford University, Department of Economics

Subject	Stanford Department of Economics
Subject	Central bank communication
Subject	interest rate projections
Subject	Norges Bank
Subject	Riksbank
Genre	Thesis

Location	https://purl.stanford.edu/kr330ky4005

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Preferred Citation: Walker, Michael. (2009). The Publication of Interest Rate Projections by the Central Banks of Norway and Sweden. Stanford Digital Repository. Available at: https://purl.stanford.edu/kr330ky4005

Stanford University, Department of Economics, Honors Theses

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