Revealing the Secrets of the Temple: The Value of Publishing Central Bank Interest Rate Projections
The modern view of monetary policy stresses its role in shaping the entire yield curve of interest rates in order to achieve various macroeconomic objectives. A crucial element of this process involves guiding financial market expectations of future central bank actions. Recently, a few central banks have started to explicitly signal their future policy intentions to the public, and two of these banks have even begun publishing their internal interest rate projections. We examine the macroeconomic effects of direct revelation of a central bank's expectations about the future path of the policy rate. We show that, in an economy where private agents have imperfect information about the determination of monetary policy, central bank communication of interest rate projections can help shape financial market expectations and may improve macroeconomic performance.
For helpful comments, we thank Lars Svensson, Marvin Goodfriend, Oistein Roisland, and colleagues throughout the Federal Reserve System. Vuong Nguyen provided excellent research assistance. The views expressed in this paper are our own and not necessarily those of others at the Federal Reserve Bank of San Francisco or the National Bureau of Economic Research.
Revealing the Secrets of the Temple: The Value of Publishing Central Bank Interest Rate Projections, Glenn D. Rudebusch, John C. Williams. in Asset Prices and Monetary Policy, Campbell. 2008