scholarly journals Inflated Expectations: How Government Partisanship Shapes Monetary Policy Bureaucrats’ Inflation Forecasts

2014 ◽  
Vol 3 (2) ◽  
pp. 353-380 ◽  
Author(s):  
Christopher Gandrud ◽  
Cassandra Grafström
Keyword(s):  
Monetary Policy ◽  
Federal Reserve ◽  
Economic Conditions ◽  
Inflation Expectations ◽  
Economic Policies ◽  
Common Rule ◽  
Rule Of Thumb ◽  
Inflation Forecasts ◽  
Left Party ◽  
Actual Policy

Governments’ party identifications can indicate the types of economic policies they are likely to pursue. A common rule of thumb is that left-party governments are expected to pursue policies for lower unemployment, but which may cause inflation. Right-party governments are expected to pursue lower inflation policies. How do these expectations shape the inflation forecasts of monetary policy bureaucrats? If there is a mismatch between the policies, bureaucratsexpectgovernments to implement, and those that theyactuallydo, forecasts will be systematically biased. Using US Federal Reserve Staff’s forecasts we test for executive partisan biases. We find that irrespective of actual policy and economic conditions forecasters systematically overestimate future inflation during left-party presidencies and underestimate future inflation during right-party ones. Our findings suggest that partisan heuristics play an important part in monetary policy bureaucrats’ inflation expectations.

scholarly journals Can inflation forecast and monetary policy path be really useful? The case of the Czech Republic

Equilibrium ◽  
2015 ◽  
Vol 10 (3) ◽  
pp. 9 ◽  
Author(s):  
Magdalena Szyszko ◽  
Karolina Tura
Keyword(s):  
Decision Making ◽  
Monetary Policy ◽  
Qualitative Analysis ◽  
Central Bank ◽  
Quantitative Methods ◽  
Inflation Expectations ◽  
The Czech Republic ◽  
Inflation Forecasts ◽  
National Bank ◽  
Parametric Statistics

Producing and revealing inflation forecast is believed to be the best way of implementing a forward-looking monetary policy. The article focuses on inflation forecast targeting (IFT) at the Czech National Bank (CNB) in terms of its efficiency in shaping consumers’ inflation expectations. The goal of the study is to verify the accuracy of the inflation forecasts, and their influence on inflation expectations. The research is divided into four stages. At the first stage, central bank credibility is examined. At the second stage – accuracy of the inflation forecasts. The next step of the research covers a qualitative analysis of IFT implementation. Finally, the existence of the interdependences of inflation forecast, optimal policy paths and inflation expectations is analyzed. Credibility of the central bank, accuracy of the forecast and decision-making procedures focused on the forecast are the premises for the existence of relationship between forecasts and expectations. The research covers the period from July 2002 – till the end of 2013. Its methodology includes qualitative analysis of decision-making of the CNB, quantitative methods (Kia and Patron formula, MAE forecasts errors, quantification of expectations, non-parametric statistics). The results confirm the existence of interdependences between inflation forecasts and expectations of moderate strength. The preconditions of such interdependences are partially fulfilled. The research opens the field for cross-country comparisons and for quantification of IFT implementation.

scholarly journals Inflation Forecasts Versus Shaping Inflation Expectations. Comparative Analysis

2015 ◽  
Vol 18 (4) ◽  
pp. 139-156 ◽  
Author(s):  
Magdalena Szyszko
Keyword(s):  
Monetary Policy ◽  
Inflation Expectations ◽  
Measures Of Association ◽  
Inflation Forecasts ◽  
Inflation Forecasting ◽  
Public Expectations ◽  
Starting Point ◽  
National Bank ◽  
Central Bankers

This article jointly analyzes inflation expectations of consumers and inflation forecasts. Its starting point is the predominant role of expectations in monetary policy. This is crucial market information in the decision-making process of the central bankers as it may show the actual future inflation. On the other hand, the central bank wants to influence expectations in order to facilitate achieving the main goals of monetary policy. Inflation forecasting is a tool for shaping public expectations. In the research, covering four central banks (the National Bank of Hungary, National Bank of Poland, the Czech National Bank, Sveriges Riksbank), the author analyzes the interdependencies of inflation forecasts and inflation expectations of consumers. Data on expectations are derived from the surveys and quantified. Then non-parametric measures of association are calculated. The results confirm the hypothesis on the existence of such relationships. The strength of this interdependence varies among countries, from weak to strong. The study opens the field for further discussions on strengthening this relationship.

The Economic Policies of European Governments, Part I: Monetary Policy

1978 ◽  
Vol 8 (3) ◽  
pp. 285-311 ◽  
Author(s):  
Andrew T. Cowart
Keyword(s):  
Monetary Policy ◽  
Economic Policy ◽  
Social Welfare ◽  
Economic Conditions ◽  
Economic Policies ◽  
Transport Services ◽  
Redistributive Taxation ◽  
Short Run ◽  
Post War

Rapidly changing economic conditions and the acceptance by governments of the responsibility for those conditions have together provided one of the most volatile and perplexing policy contexts for governments in the post-war era. The volatility of economic policy is inherent in its potential for change over the short run. It can take several years before changes are approved and implemented in order to deal with failures in social welfare programmes, transport services, or redistributive taxation provisions. In contrast, the instruments of economic policy may be altered on a daily, monthly, quarterly or yearly basis as conditions change.

Do Inflation Expectations Matter for Inflation Forecastability: Evidence from Pakistan

2016 ◽  
Vol 55 (3) ◽  
pp. 211-225 ◽  
Author(s):  
Fayyaz Hussain ◽  
Zafar Hayat
Keyword(s):  
Monetary Policy ◽  
Predictive Ability ◽  
Jel Classification ◽  
Inflation Expectations ◽  
Forecast Performance ◽  
Inflation Forecasts ◽  
Forward Guidance ◽  
Forecasting Performance ◽  
Out Of Sample ◽  
Effectiveness Of Monetary Policy

We empirically investigate if the incorporation of inflation expectations helps improve the forecasting performance of a suite of univariate inflation models. Since inflation forecasts are instrumental to the conduct of an effective monetary policy, any possible improvement in the inflation forecastability may tend to enhance the effectiveness of monetary policy—by providing forward guidance both to the monetary authority and the market to effectively anchor inflation expectations. Our results are robust across specifications of our baseline models, sample sizes and forecast horizons. The introduction of inflation expectations, whether contemporaneously or with a 6-months lead improves the predictive ability—both in-sample and out-of-sample for 6 and 12-month horizons. Deterioration however is observed for a 3- month horizon, which point towards the weak representation of the expectations data for a 3- month horizon. JEL Classification: E31, E37 Keywords: Inflation-expectations, Forecast-performance, Pakistan.

Central Bank Communications and Professional Forecasts: Evidence From India

2021 ◽  
pp. 097265272110440
Author(s):  
Ashima Goyal ◽  
Prashant Parab
Keyword(s):  
Monetary Policy ◽  
Inflation Targeting ◽  
Jel Classification ◽  
Inflation Expectations ◽  
Speed Of Adjustment ◽  
Inflation Forecasts ◽  
Monetary Policy Committee ◽  
Reserve Bank ◽  
Policy Statements ◽  
Repo Rate

We analyze the influence of qualitative and quantitative communications of the Reserve Bank of India (RBI) on inflation expectations of professional forecasters and draw out implications for policy. Estimating Carroll-type epidemiological models of expectation formation under information rigidities, we get a large speed of adjustment of professional forecasters’ expectations. Analysis of the determinants of inflation forecasts, inflation surprises, and forecaster disagreement reveals significant influence of quantitative RBI communications in the form of inflation projections. This effect is prominent for shorter-horizon forecasts and after adoption of flexible inflation targeting. Macroeconomic fundamentals like lagged inflation and repo rate also significantly influence inflation forecasts. Choice of words in the RBI monetary policy statements has more impact after October 2016, when the monetary policy committee became the decision-making body. JEL Classification: E31, E52, E58

Federal Reserve Information and the Behavior of Interest Rates

2000 ◽  
Vol 90 (3) ◽  
pp. 429-457 ◽  
Author(s):  
Christina D Romer ◽  
David H Romer
Keyword(s):  
Monetary Policy ◽  
Asymmetric Information ◽  
Interest Rates ◽  
Federal Reserve ◽  
The Public ◽  
Inflation Forecasts

This paper tests for the existence of asymmetric information between the Federal Reserve and the public by examining Federal Reserve and commercial inflation forecasts. It demonstrates that the Federal Reserve has considerable information about inflation beyond what is known to commercial forecasters. It also shows that monetary-policy actions provide signals of the Federal Reserve's information and that commercial forecasters modify their forecasts in response to those signals. These findings may explain why long-term interest rates typically rise in response to shifts to tighter monetary policy. (JEL E52, E43, D82)

scholarly journals Monetary Policy Surprises and Inflation Expectation Dispersion

2020 ◽  
Vol 20 (252) ◽  
Author(s):  
Bertrand Gruss ◽  
Sandra Lizarazo ◽  
Francesco Grigoli
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Rational Expectations ◽  
The United States ◽  
Inflation Expectations ◽  
Federal Funds Rate ◽  
Inflation Expectation ◽  
Inflation Forecasts ◽  
Effect Of Monetary Policy ◽  
Information Rigidity

Anchoring of inflation expectations is of paramount importance for central banks’ ability to deliver stable inflation and minimize price dispersion. Relying on daily interest rates and inflation forecasts from major financial institutions in the United States, we calculate monetary policy surprises of individual analysts as the unexpected changes in the federal funds rate before the meetings of the Federal Reserve Board. We then assess the effect of monetary policy surprises on the dispersion of inflation expectations, a proxy for the extent of anchoring, which is based on the same analysts’ inflation projections submit-ted after the Fed meetings. With an identification strategy that hinges on a tight window around the Fed meetings, we find that monetary policy surprises lead to an increase in the dispersion of inflation expectations up to nine months after the policy meeting. We rationalize these results with a partial equilibrium model that features rational expectations and sticky information. When we allow the degree of information rigidity to depend on the realization of firm-specific shocks, the theoretical results are qualitatively consistent and quantitatively close to the empirical evidence.

The Priority of Democracy

2011 ◽  
Author(s):  
Jack Knight ◽  
James Johnson
Keyword(s):  
Decision Making ◽  
Monetary Policy ◽  
Political Institutions ◽  
Federal Reserve ◽  
Democratic Politics ◽  
Institutional Choice ◽  
Democratic Process ◽  
Strong Case ◽  
The Subject ◽  
The Relationship

Pragmatism and its consequences are central issues in American politics today, yet scholars rarely examine in detail the relationship between pragmatism and politics. This book systematically explores the subject and makes a strong case for adopting a pragmatist approach to democratic politics—and for giving priority to democracy in the process of selecting and reforming political institutions. What is the primary value of democracy? When should we make decisions democratically and when should we rely on markets? And when should we accept the decisions of unelected officials, such as judges or bureaucrats? This book explores how a commitment to pragmatism should affect our answers to such important questions. It concludes that democracy is a good way of determining how these kinds of decisions should be made—even if what the democratic process determines is that not all decisions should be made democratically. So, for example, the democratically elected U.S. Congress may legitimately remove monetary policy from democratic decision-making by putting it under the control of the Federal Reserve. This book argues that pragmatism offers an original and compelling justification of democracy in terms of the unique contributions democratic institutions can make to processes of institutional choice. This focus highlights the important role that democracy plays, not in achieving consensus or commonality, but rather in addressing conflicts. Indeed, the book suggest that democratic politics is perhaps best seen less as a way of reaching consensus or agreement than as a way of structuring the terms of persistent disagreement.

Credit Restriction or Economic Growth?

2019 ◽  
pp. 45-54
Author(s):  
E.Y. Sokolova ◽  
A.S. Tanasova
Keyword(s):  
Economic Growth ◽  
Monetary Policy ◽  
Domestic Demand ◽  
Retirement Age ◽  
Inflation Expectations ◽  
Negative Consequences ◽  
Credit Restriction

At the end of 2018 — the very beginning of 2019 Russia faced negative consequences of the economic measures that took place in 2018, such as the retirement age rising, tightening sanctions against Russia, VAT rising which caused increased inflation expectations of people. The Bank of Russia increased the key rate in response. All these measures lead to decrease of domestic demand, and not stimulate economic growth. The article examines the possibility of using the monetary policy method of credit restriction to fulfil the presidential act to stimulate economic growth.

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