The National Bank of Ukraine hosted another open research seminar, where Dr David Vestin, Senior Advisor, Research Division, Monetary Policy Department of Sveriges Riksbank, presented the research he carried out jointly with Oreste Tristani, Senior Adviser, Directorate General Research of the European Central Bank, dedicated to specifics of monetary policy under conditions of a divergence between central bank forecasts and expectations of the private sector.
At the seminar, Dr Vestin raised the issues of the effect produced by a central bank announcing its interest rate forecast under various conditions of expectations formation. With standard assumptions regarding rational expectations of economic agents that are fully informed, announcing the trajectory of interest rate change is sufficient for the private sector to form expectations in line with the central bank’s intentions. However, this is not always the case as shown by the research based on data from Sweden.
The study by David Vestin and Oreste Tristani is dedicated to explaining the discrepancy between theory and practice using a model that incorporates the process of two-sided learning. The research findings use the example of Sweden to demonstrate that statistical data are better explained by the model taking into account the uncertainty about the level of the neutral rate of interest and perception of changes in inflation targets. The research also draws an important conclusion that, despite the fact that the influence of the central bank announcements on private sector expectations are weaker under conditions of uncertainty, no publication of interest rate forecasts by the central bank leads to even larger fluctuations of output and inflation.
The video of the seminar is available by the following link.
The materials from the previous open research seminars are available here.
We invite potential speakers to take part in the next seminars. The materials with the results of scientific research (article and/or presentation), the author's resume, and the desired date for the seminar should be sent to the Research Division of the Monetary Policy and Economic Analysis Department by e-mail: [email protected].