NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Are Central Banks' Projections Meaningful?

Jordi Galí

NBER Working Paper No. 16384
Issued in September 2010
NBER Program(s):   EFG   ME

Central banks' projections–i.e. forecasts conditional on a given interest rate path–are often criticized on the grounds that their underlying policy assumptions are inconsistent with the existence of a unique equilibrium in many forward-looking models. Here I describe three alternative approaches to constructing projections that are not subject to the above criticism, using two different versions of New Keynesian model as reference frameworks. Most importantly, I show how the three approaches generate different projections for inflation and output, even though they imply an identical path for the interest rate. The latter result calls into question the meaning and usefulness of such projections.

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Document Object Identifier (DOI): 10.3386/w16384

Published: “Are Central Banks’ Pro jection s Meaningful?,” Journal of Monetary Economics , 58(6 - 8), 2011, 537 - 550.

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