Long gone is the era when markets were left guessing about what the federal funds target actually was. Now we have a Federal Reserve which has not only told us about their current policy rate, but what they expect the rate to be two years from now.
At the forefront of these efforts for altogether more transparent monetary policy have been the select group of central banks that publish a projected path for interest rates.
Advocates say the projections give central banks greater influence over markets’ expectations, which in turn enhances the transmission of monetary policy. The case for projections, then, is similar to that for conditional commitments such as the Fed’s.
But do they actually work?
A report commissioned by Sweden’s parliament into the performance of the Riksbank – among this select group (which also includes the Czech National Bank, Norges Bank and the Reserve Bank of New Zealand) – suggests not. At least not past a year ahead.
