CENTRAL BANK STRATEGIC FORECASTING |
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Authors: | SEBASTIAN GOMEZ‐BARRERO JULIAN A PARRA‐POLANIA |
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Institution: | 1. +34 94 601 7138+34 94 601 3753;2. M.A. Student, Faculty of Economics and Business, Universidad del Pais Vasco, , Bilbao, Spain |
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Abstract: | In most of the literature on transparency it has been standard to assume that central banks release truthful information when communicating with the public. However, the monetary policymaker may act strategically and misrepresent private information intending to reduce economic volatility by manipulating inflation expectations. We set up a simple model which includes misrepresentation as a possible action for the central bank and derive some testable implications. The empirical evidence from the analysis of inflation forecasts of six central banks (Brazil, Canada, England, Iceland, New Zealand, and Sweden) is consistent with the existence of strategic forecasting. (JEL E52, E58) |
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