When is Lift-Off? Evaluating Forward Guidance from the Shadow

36 Pages Posted: 29 Jan 2014 Last revised: 9 Aug 2014

See all articles by Matthias Neuenkirch

Matthias Neuenkirch

University of Trier - Faculty of Economics; CESifo (Center for Economic Studies and Ifo Institute)

Pierre L. Siklos

Wilfrid Laurier University - School of Business & Economics; Balsillie school of international affairs ; Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA)

Date Written: August 8, 2014

Abstract

We examine the record of the CD Howe’s shadow Monetary Policy Council (SMPC) in Canada. We report a considerable diversity of opinion about the recommended future path of interest rates inside the SMPC. During the period of Bank of Canada forward guidance, market determined forward rates diverge considerably from the recommendations implied by the SMPC. Nevertheless, there is little evidence that the Bank of Canada and the SMPC coordinate their future views about the interest rate path. Finally, changes in views about future changes in policy rates for horizons beyond the next two interest rate decisions are difficult to explain. Our findings imply that there remain challenges in understanding the evolution of future interest rate paths over time. We conclude with some policy implications.

Keywords: Bank of Canada, central bank communication, forward guidance, monetary policy committees, shadow councils, Taylor rules

JEL Classification: E43, E52, E58, E61, E69

Suggested Citation

Neuenkirch, Matthias and Siklos, Pierre L., When is Lift-Off? Evaluating Forward Guidance from the Shadow (August 8, 2014). Available at SSRN: https://ssrn.com/abstract=2386682 or http://dx.doi.org/10.2139/ssrn.2386682

Matthias Neuenkirch (Contact Author)

University of Trier - Faculty of Economics ( email )

Universitätsring 15
Trier, 54296
Germany
+49 - (0)651 - 201 - 2629 (Phone)

HOME PAGE: http://www.uni-trier.de/index.php?id=50130

CESifo (Center for Economic Studies and Ifo Institute) ( email )

Poschinger Str. 5
Munich, DE-81679
Germany

Pierre L. Siklos

Wilfrid Laurier University - School of Business & Economics ( email )

Department of Economics
75 University Avenue W.
Waterloo, Ontario N2L 3C5
Canada
519-884-0710 Ext.. 3491 (Phone)

HOME PAGE: http://pierrelsiklos.com

Balsillie school of international affairs ( email )

67 Erb Street West
Waterloo, ON N2L 6C2
Canada

Australian National University (ANU) - Centre for Applied Macroeconomic Analysis (CAMA) ( email )

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