TAILIEUCHUNG - NATIONAL BANK OF POLAND WORKING PAPER No . 72: Central bank’s macroeconomic projections and learning

The delayed response to economic shocks or to changes in monetary policy which characterize the ináation expectations and the interest rate dynamics is also explained by the existence of this asymmetric information set between private agents and monetary authorities. Hence, Huh and Lansing (2000) and Erceg and Levin (2001) are two models which demonstrate how an ináation scare problem could produce a sharp increase of long-term interest rates, as for the Volcker disináation period of the early 1980s and the 1987 ináation scare episode. The sluggish decline of the ináation rate following these signiÖcant increases of long-term interest rates could then be explained by time necessary to private agents. | NATIONAL BANK OF POLAND WORKING PAPER GOO No. 72 Central bank s macroeconomic projections and learning Giuseppe Ferrero Alessandro Secchi Warsaw 2010 Giuseppe Ferrero Alessandro Secchi The opinions expressed in this paper are those of the authors and do not necessarily reflect those of Bank of Italy. The authors thank Seppo Honkapohja James Bullard Jacek Suda Petra Geraats Giulio Nicoletti and participants at the National Bank of Poland conference Publishing Central Bank forecast in theory and practice and the Federal Reserve of St. Louis conference on learning for useful comments. The authors also thank two anonymous referees. The paper was presented at the National Bank of Poland s conference Publishing Central Bank forecast in theory and practice held on 5-6 November 2009 in Warsaw. Design Oliwka . Layout and print NBP Printshop Published by National Bank of Poland Education and Publishing Department 00-919 Warszawa 11 21 Swiẹtokrzyska Street phone 48 22 653 23 35 fax 48 22 653 13 21 Copyright by the National Bank of Poland 2010 http Contents Contents Non-technical 1. 2. The model .12 3. Central Bank interest rate path . E-Stability of the REE. 16 . Speed of 4. Announcing expected inflation and output . Announcing only expected inflation and output . Announcing expected interest rate inflation and output 5. Extensions . 32 . Publication of a longer path. 32 . Forward expectations in the policy . Announced path with a subjective judgemental 6. Appendix Proofs of Appendix 1 The REE under contemporaneous Taylor rules. 38 Appendix 2 Proof of proposition 1 Announcement of the policy path and E-stability of the REE . 39 Appendix 3 Proof of proposition 2 Announcement of policy intentions and root-t convergence . 40 .

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