Federal Reserve Information and the Behavior of Interest Rates

Romer, Christina D.; Romer, David

doi:10.1257/aer.90.3.429

Cited by 897 publications

(784 citation statements)

References 18 publications

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“…It is plausible that a central bank, which typically employs a large number of PhD economists, uses a more sophisticated economic model and has more detailed forecasts than financial market participants, which each have much more limited resources. In fact, Romer and Romer (2000) have shown that confidential Federal Reserve staff forecasts are superior to commercial forecasts, even at short horizons.…”

Section: Economic Conditionsmentioning

confidence: 99%

Transparency of Monetary Policy: Theory and Practice

Geraats¹

2006

CESifo Economic Studies

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Standard-Nutzungsbedingungen:Die Dokumente auf EconStor dürfen zu eigenen wissenschaftlichen Zwecken und zum Privatgebrauch gespeichert und kopiert werden.Sie dürfen die Dokumente nicht für öffentliche oder kommerzielle Zwecke vervielfältigen, öffentlich ausstellen, öffentlich zugänglich machen, vertreiben oder anderweitig nutzen.Sofern die Verfasser die Dokumente unter Open-Content-Lizenzen (insbesondere CC-Lizenzen) zur Verfügung gestellt haben sollten, gelten abweichend von diesen Nutzungsbedingungen die in der dort genannten Lizenz gewährten Nutzungsrechte. Transparency has become one of the main features of monetary policymaking during the last decade. This paper establishes some stylized facts. In addition, it provides a systematic overview of the practice of monetary policy transparency around the world. It shows much diversity in information disclosure, even for central banks with the same monetary policy framework, including inflation targeting. Nevertheless, the paper finds significant differences in transparency across monetary policy frameworks. The empirical findings are explained using key insights distilled from the theoretical literature. Thus, this paper aims to bridge the gap between the theory and practice of monetary policy transparency. Terms of use: Documents in EconStor mayJEL Code: E58, D82.

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Section: Economic Conditionsmentioning

confidence: 99%

Transparency of Monetary Policy: Theory and Practice

Geraats¹

2006

CESifo Economic Studies

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“…As discussed in such sources as Romer and Romer (2000), Sims (2002), and Croushore (2006), evaluating the accuracy of real-time forecasts requires a difficult decision on what to take as the actual data in calculating forecast errors. We follow studies such as Romer and Romer (2000) and Faust and Wright (2009) and use the second available estimates of GDP/GNP and the GDP/GNP deflator as actuals in evaluating forecast accuracy.…”

Section: Forecast Evaluation Samplementioning

confidence: 99%

“…We follow studies such as Romer and Romer (2000) and Faust and Wright (2009) and use the second available estimates of GDP/GNP and the GDP/GNP deflator as actuals in evaluating forecast accuracy. In the case of h-quarter ahead forecasts made for period t + h with vintage t data ending in period t − 1, the second available estimate is taken from the vintage t + h + 2 data set.…”

Section: Forecast Evaluation Samplementioning

confidence: 99%

Using Entropic Tilting to Combine BVAR Forecasts with External Nowcasts

Krüger¹,

Clark²,

Ravazzolo³

2014

Working Paper (Federal Reserve Bank of Cleveland)

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This paper shows entropic tilting to be a flexible and powerful tool for combining mediumterm forecasts from BVARs with short-term forecasts from other sources (nowcasts from either surveys or other models). Tilting systematically improves the accuracy of both point and density forecasts, and tilting the BVAR forecasts based on nowcast means and variances yields slightly greater gains in density accuracy than does just tilting based on the nowcast means. Hence entropic tilting can offer -more so for persistent variables than not-persistent variables -some benefits for accurately estimating the uncertainty of multi-step forecasts that incorporate nowcast information.

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“…Romer (2001) and Romer and Romer (2000) suggest that a rise, for example, in the federal funds rate reveals a Federal Reserve forecast of higher inflation leading the market to predict higher future short-term interest rates. To explain the effect on interest rates at maturities as long as 30 years Gurkaynak et al (2005a), Gurkaynak, Levin, and Swanson (2006), Beechey (2004) and Ellingsen et al (2004) suggest that Federal Reserve policy moves reveal information about the central bank's long-term inflation target.…”

Section: Single-equation Studiesmentioning

confidence: 99%

Monetary policy and U.S. long-term interest rates: How close are the linkages?

Berument

Froyen

2009

Journal of Economics and Business

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The effect of monetary policy on long-term interest rates has been a question of interest in recent years. A number of papers, relying on single-equation estimation techniques, have presented evidence that long-term interest rates exhibit sizable and significant responses to unanticipated changes in the Federal Reserve's target federal funds rate. This paper examines these findings in light of conflicting findings from VAR studies, which indicate negligible effects of innovations in the federal funds rate on long-term rates. To address the issue we use a single-equation approach where unanticipated changes in the federal funds rate are measured as residuals from policy reaction functions. We also estimate VAR specifications, which incorporate information about the timing of changes in the Federal Reserve's target federal funds rate. Our single-equation estimates provide evidence of strong responses of long rates to unanticipated changes in the federal funds rate both for the Greenspan period and for a longer period back to the mid-1960s. It seems likely that estimated VARs for the post-1987 years are less successful in isolating monetary policy surprises than was the case for earlier years.

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Federal Reserve Information and the Behavior of Interest Rates

Cited by 897 publications

References 18 publications

Transparency of Monetary Policy: Theory and Practice

Transparency of Monetary Policy: Theory and Practice

Using Entropic Tilting to Combine BVAR Forecasts with External Nowcasts

Monetary policy and U.S. long-term interest rates: How close are the linkages?

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