Monday, November 17, 2014

17/11/2014: Central Bank Strategic Forecasting

"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."

Italics are mine. The quote is from Gomez-Barrero, Sebastian and Parra-Polania, Julian A., "Central Bank Strategic Forecasting" (October 2014). Contemporary Economic Policy, Vol. 32, Issue 4, pp. 802-810, 2014.

Nothing else to add, other than that the guardians of data, the supervisors of the financial system, the enforcers of rules and regulations are… crooked when it comes to the forecasts they lavish on the unsuspecting journos and public.

H/T to CeBaSCo @cebastcom

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