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Does Publication of Interest Rate Paths Provide Guidance?

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  • Natvik, Gisle J.
  • Rime, Dagfinn
  • Syrstad, Olav

Abstract

Does the central bank practice of publishing interest rate projections (IRPs) improve how market participants map new information into future interest rates? Using high-frequent data on Forward Rate Agreements (FRAs) we compute market forecast errors; differences between expected future interest rates and ex post realizations. We assess their change in narrow windows around monetary policy announcements and macroeconomic releases in Norway and Sweden. Overall, communication of future policy plans do not improve markets’ response to information, irrespective of whether or not IRPs are in place. A decomposition of market reactions into responses to the current monetary policy action (“target”) and responses to signals about the future (“path”), reveals that only policy actions lead to improvements in market forecasts.

Suggested Citation

  • Natvik, Gisle J. & Rime, Dagfinn & Syrstad, Olav, 2019. "Does Publication of Interest Rate Paths Provide Guidance?," Working Paper 2019/16, Norges Bank.
    • Handle: RePEc:bno:worpap:2019_16
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    Cited by:

    1. Alexopoulos, Michelle & Han, Xinfen & Kryvtsov, Oleksiy & Zhang, Xu, 2024. "More than words: Fed Chairs’ communication during congressional testimonies," Journal of Monetary Economics, Elsevier, vol. 142(C).
    2. Carola Conces Binder & Rodrigo Sekkel, 2024. "Central bank forecasting: A survey," Journal of Economic Surveys, Wiley Blackwell, vol. 38(2), pages 342-364, April.
    3. Boris Hofmann & Dora Xia, 2022. "Quantitative forward guidance through interest rate projections," BIS Working Papers 1009, Bank for International Settlements.
    4. Sui-Jade Ho & Oezer Karagedikli, 2021. "Effects of Monetary Policy Communication in Emerging Market Economies: Evidence from Malaysia," MAGKS Papers on Economics 202126, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    5. Gunda‐Alexandra Detmers & Ozer Karagedikli & Richhild Moessner, 2021. "Quantitative or Qualitative Forward Guidance: Does it Matter?," The Economic Record, The Economic Society of Australia, vol. 97(319), pages 491-503, December.
    6. Martin Nordström, 2020. "A forecast evaluation of the Riksbank's policy‐rate projections," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 49(3), September.
    7. Julián Caballero & Blaise Gadanecz, 2023. "Did interest rate guidance in emerging markets work?," BIS Working Papers 1080, Bank for International Settlements.
    8. Brubakk, Leif & ter Ellen, Saskia & Robstad, Ørjan & Xu, Hong, 2022. "The macroeconomic effects of forward communication," Journal of International Money and Finance, Elsevier, vol. 120(C).
    9. Luchelle Soobyah & Daan Steenkamp, 2021. "Has publication of a repo path provided guidance," Occasional Bulletin of Economic Notes 11033, South African Reserve Bank.
    10. repec:rbz:oboens:11019 is not listed on IDEAS
    11. Galati, Gabriele & Moessner, Richhild, 2021. "Effects of Fed policy rate forecasts on real yields and inflation expectations at the zero lower bound," Economics Letters, Elsevier, vol. 198(C).

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    More about this item

    Keywords

    monetary policy; interest rate paths; forward guidance; high-frequency data; forecasts;
    All these keywords.

    JEL classification:

    • O13 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Agriculture; Natural Resources; Environment; Other Primary Products
    • Q33 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Nonrenewable Resources and Conservation - - - Resource Booms (Dutch Disease)

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