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Expectations, Taylor Rules, and Credibility – Evidence from Four Small Open European Economies with Independent Central Banks

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Listed:
  • Ralf Fendel
  • Michael Frenkel
  • Jan-Christoph Rülke

Abstract

This paper analyzes the expectation formation process in Denmark, Norway, Sweden and Switzerland. We use the Consensus Economic Forecast poll and show that the forecasts are consistent with Taylor-type rules for three countries but not for Norway. This can be attributed to Norway's long period of an exchange rate targetor. Additionally, we provide evidence that the expected long-term infl ation rate is consistent with both the actual average in flation rate and the infl ation target for all countries. This implies that the professional forecasters understand the di erent monetary policy strategies among the four countries indicating that all central banks can be regarded as highly credible.

Suggested Citation

  • Ralf Fendel & Michael Frenkel & Jan-Christoph Rülke, 2009. "Expectations, Taylor Rules, and Credibility – Evidence from Four Small Open European Economies with Independent Central Banks," WHU Working Paper Series - Economics Group 09-02, WHU - Otto Beisheim School of Management.
    • Handle: RePEc:whu:wpaper:09-02
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    More about this item

    Keywords

    Taylor rule; expectation formation; monetary policy; Scandinavian economies;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models

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