Forward Guidance Through Interest Rate Projections: Does It Work?

Brubakk, Leif; Hong, Xu; Ellen, Saskia ter

doi:10.2139/ssrn.2955662

Cited by 17 publications

(31 citation statements)

References 29 publications

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“…The estimates show a characteristic hump-shape, with a peak around 18-24 months. These findings are in line with what Gürkaynak et al (2005), Swanson (2017) and Brubakk et al (2017) find for domestic effects of respectively U.S., and Norwegian and Swedish central bank communication.…”

Section: Interest Rates and Asset Prices In Norway Sweden And Denmarksupporting

confidence: 91%

“…Finally, to be able to further link ECB spillovers with domestic monetary policy effectiveness, we examine the results of Brubakk et al (2017). In their paper, they extract a target and path factor from Norwegian and Swedish interest rate changes around monetary policy announcements of the Norwegian (Norges Bank) and Swedish (Sveriges…”

Section: Effectiveness Of Domestic Monetary Policy In Norway and Swedenmentioning

confidence: 99%

“…plots the two rotated factors over the sample period. An interesting aspect is that the factors do not necessarily move in the same direction, which implies that different surprise components of the ECB announcements may influence interest rates in opposite directions.To evaluate the effectiveness of domestic monetary policy surprises, we use the shocks as computed inBrubakk et al (2017).…”

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confidence: 99%

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ECB Spillovers and Domestic Monetary Policy Effectiveness in Small Open Economies

Ellen¹,

Jansen²,

Midthjell³

2018

SSRN Journal

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Section: Interest Rates and Asset Prices In Norway Sweden And Denmarksupporting

confidence: 91%

Section: Effectiveness Of Domestic Monetary Policy In Norway and Swedenmentioning

confidence: 99%

mentioning

confidence: 99%

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ECB Spillovers and Domestic Monetary Policy Effectiveness in Small Open Economies

Ellen¹,

Jansen²,

Midthjell³

2018

SSRN Journal

Self Cite

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“…However, these studies also report significant problems with convergence of the term structure to the trajectory expected by monetary authorities. Brubakk et al (2017) employed the Gürkaynak et al (2005, further termed as GSS) framework to identify the effects of publishing new interest rate projections in Sweden. The proposed method decomposed monetary policy shocks into surprises related to the present level of policy rates and expectations about their future trajectory.…”

Section: Literature Reviewmentioning

confidence: 99%

Does Forward Guidance Matter in Small Open Economies? Examples from Europe

Rybacki

2019

ERFIN

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The effect of forward guidance on interest rate expectations in small, open economies is often described as heterogeneous. There are examples when financial markets adjusted term structure to reflect interest rate forecasts provided in the projections published by the central banks. On the other hand, medium-term expectations can persistently deviate from trajectories presented by decision-makers, influenced by foreign monetary policy. Our aim is to find the maximal forecast horizon where the domestic forward guidance of local banks in European economies affects market interest rate expectations strongly as compared to the ECB policy. We analyzed the term structure of interest rates in Sweden, Norway, and the Czech Republic. Central banks in these three economies provide the most mature forward guidance, e.g., regularly publishing interest rate forecasts with detailed discussions. The three-month interbank rate path calculated with the Nelson-Siegel model was contrasted with both the trajectory of policy rates presented in central bank projections and that implied by the three-month EURIBOR. We found that interest rate expectations were more influenced by ECB policy than by domestic assumptions when the forecast horizon exceeds four quarters.

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“…There are of course other reasons for a central bank to communicate with the public by means of written statements and forecasts, such as transparency and accountability, besides the e¤ect of this communication on market expectations 7. See also Iversen and Tysklind (2017) for Sweden.…”

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confidence: 99%

Quantitative or Qualitative Forward Guidance: Does it Matter?

2018

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Every monetary policy decision by the Reserve Bank of New Zealand (RBNZ) is accompanied by a written statement about the state of the economy and the policy outlook, but only every second decision by a published interest rate forecast. We exploit this difference to study the relative influences of qualitative and quantitative forward guidance. We .find that announcements that include an interest rate forecast lead to very similar market reactions across the yield curve as announcements that only include written statements. We interpret our results as implying that central bank communication is important, but that the exact form of that communication is less critical. Our results are also consistent with market participants understanding the conditional nature of the RBNZ interest rate forecasts.

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Forward Guidance Through Interest Rate Projections: Does It Work?

Cited by 17 publications

References 29 publications

ECB Spillovers and Domestic Monetary Policy Effectiveness in Small Open Economies

ECB Spillovers and Domestic Monetary Policy Effectiveness in Small Open Economies

Does Forward Guidance Matter in Small Open Economies? Examples from Europe

Quantitative or Qualitative Forward Guidance: Does it Matter?

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