How Do Central Bank Projections and Forward Guidance Influence Private-Sector Forecasts?

We construct a 23-country panel data set to consider the effect of central bank projections and forward guidance on private-sector forecasts. Despite the strong arguments in the literature in favor of releasing central bank policy rate projections, we find that the provision of these projections reduces neither private-sector forecast dispersion nor forecast error. Further, the policy rate assumption that central banks use in their macroeconomic projections has not appeared to matter much for private-sector forecasts. We also find that forward guidance tends to reduce the dispersion and error of interest rate forecasts but less so for macroeconomic forecasts. This is consistent with the idea in the literature that forward guidance can lower interest rate forecast disagreement without reducing macroeconomic forecast disagreement because forward guidance can be interpreted by forecasters as either Delphic or Odyssean.