Skip to main content Accessibility help
Hostname: page-component-5d6d958fb5-zkswk Total loading time: 0.398 Render date: 2022-11-27T06:02:06.488Z Has data issue: true Feature Flags: { "shouldUseShareProductTool": true, "shouldUseHypothesis": true, "isUnsiloEnabled": true, "useRatesEcommerce": false, "displayNetworkTab": true, "displayNetworkMapGraph": false, "useSa": true } hasContentIssue true

The Stabilizing Effects of Publishing Strategic Central Bank Projections

Published online by Cambridge University Press:  14 January 2022

Steffen Ahrens*
Freie Universität Berlin, Department of Economics, Boltzmannstr. 20, 14195 Berlin, Germany.
Joep Lustenhouwer
Heidelberg University, Bergheimer Strasse 58, 69115 Heidelberg, Germany.
Michele Tettamanzi
REF Ricerche, Via Aurelio Saffi, 12, 20144 Milano, Italy.
*Corresponding author: Steffen Ahrens. Email:


Expectations are among the main driving forces for economic dynamics. Therefore, managing expectations has become a primary objective for monetary policy seeking to stabilize the business cycle. In this paper, we study whether central banks can manage private-sector expectations by means of publishing one-period ahead inflation projections in a New Keynesian learning-to-forecast experiment. Subjects in the experiment observe these projections along with the historic development of the economy and subsequently submit their own one-period ahead inflation forecasts. In this context, we find that the central bank can significantly manage private-sector expectations and that this management strongly supports monetary policy in stabilizing the economy. Moreover, published central bank inflation projections drastically reduce the probability of a deflationary spiral after strong negative shocks to the economy.

© The Author(s), 2022. Published by Cambridge University Press

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)


Adam, K. (2007). Experimental evidence on the persistence of output and inflation. The Economic Journal 117(520), 603–636.CrossRefGoogle Scholar
Ahrens, S. and Hartmann, M. (2015). Cross-sectional evidence on state-dependent versus time-dependent price setting. Economics Bulletin 35(4), 2701–2709.Google Scholar
Amato, J. D. and Shin, H. S. (2006). Imperfect common knowledge and the information value of prices. Economic Theory 27(1), 213–241.CrossRefGoogle Scholar
Anufriev, M. and Hommes, C. (2012). Evolutionary selection of individual expectations and aggregate outcomes in asset pricing experiments. American Economic Journal: Microeconomics 4(4), 35–64.CrossRefGoogle Scholar
Arifovic, J., Hommes, C., and Salle, I. (2019). Learning to believe in simple equilibria in a complex olg economy – Evidence from the lab. Journal of Economic Theory 183, 106182.CrossRefGoogle Scholar
Arifovic, J. and Petersen, L. (2017). Stabilizing expectations at the zero lower bound: Experimental evidence. Journal of Economic Dynamics and Control 82, 21–43.CrossRefGoogle Scholar
Arifovic, J. and Sargent, T. J. (2003). Laboratory experiments with an expectational Phillips curve. In Altig, D. E. and Smith, B. D. (Eds.), Evolution and Procedures in Central Banking, pp. 2355. Cambridge University Press.CrossRefGoogle Scholar
Assenza, T., Heemeijer, P., Hommes, C. H., and Massaro, D. (2021). Managing self-organization of expectations through monetary policy: A macro experiment. Journal of Monetary Economics 117, 170186.CrossRefGoogle Scholar
Bao, T. and Zong, J. (2019). The impact of interest rate policy on individual expectations and asset bubbles in experimental markets. Journal of Economic Dynamics and Control 107, 103735.CrossRefGoogle Scholar
Bao, T., Duffy, J., and Hommes, C. (2013). Learning, forecasting and optimizing: An experimental study. European Economic Review 61, 186204.CrossRefGoogle Scholar
Benhabib, J., Schmitt-Grohé, S., and Uribe, M. (2001). Monetary policy and multiple equilibria. American Economic Review 91(1), 167–186.CrossRefGoogle Scholar
Blanco, M., Engelmann, D., Koch, A. K., and Normann, H.-T. (2010). Belief elicitation in experiments: Is there a hedging problem? Experimental Economics 13(4), 412–438.CrossRefGoogle Scholar
Blinder, A. S. (2000). Central-bank credibility: Why do we care? How do we build it? American Economic Review 90(5), 1421–1431.CrossRefGoogle Scholar
Blinder, A. S. and Morgan, J. (2005). Are two heads better than one? Monetary policy by committee. Journal of Money, Credit and Banking 37(5), 789–811.CrossRefGoogle Scholar
Blinder, A. S. and Morgan, J. (2008). Do monetary policy committees need leaders? A report on an experiment. American Economic Review 98(2), 224–29.CrossRefGoogle Scholar
Blinder, A. S., Ehrmann, M., Fratzscher, M., De Haan, J., and Jansen, D.-J. (2008). Central bank communication and monetary policy: A survey of theory and evidence. Journal of Economic Literature 46(4), 910–45.CrossRefGoogle Scholar
Bordo, M. and Siklos, P. (2014). Central Bank Credibility, Reputation and Inflation Targeting in Historical Perspective, NBER Working Papers 20693, National Bureau of Economic Research, Inc.CrossRefGoogle Scholar
Branch, W. A. and McGough, B. (2009). A New Keynesian model with heterogeneous expectations. Journal of Economic Dynamics and Control 33(5), 1036–1051.CrossRefGoogle Scholar
Brock, W. A. and Hommes, C. H. (1997). A rational route to randomness. Econometrica 65(5), 1059–1096.CrossRefGoogle Scholar
Campbell, J. R., Evans, C. L., Fisher, J. D. M., Justiniano, A., Calomiris, C. W., and Woodford, M. (2012). Macroeconomic effects of federal reserve forward guidance [with comments and discussion]. Brookings Papers on Economic Activity, pp. 180.CrossRefGoogle Scholar
Capistrán, C. and Timmermann, A. (2009). Disagreement and biases in inflation expectations. Journal of Money, Credit and Banking 41(2–3), 365–396.CrossRefGoogle Scholar
Carbone, E. and Hey, J. D. (2004). The effect of unemployment on consumption: An experimental analysis. The Economic Journal 114(497), 660–683.CrossRefGoogle Scholar
Carbone, E. and Duffy, J. (2014). Lifecycle consumption plans, social learning and external habits: Experimental evidence. Journal of Economic Behavior & Organization 106, 413427.CrossRefGoogle Scholar
Cecchetti, S. and Krause, S. (2002). Central bank structure, policy efficiency, and macroeconomic performance: Exploring empirical relationships. Federal Reserve Bank of St. Louis Review 84, 99117.Google Scholar
Charemza, W. and Ladley, D. (2016). Central banks’ forecasts and their bias: Evidence, effects and explanation. International Journal of Forecasting 32(3), 804–817.CrossRefGoogle Scholar
Chen, D. L., Schonger, M., and Wickens, C. (2016). oTree- an open-source platform for laboratory, online, and field experiments. Journal of Behavioral and Experimental Finance 9, 8897.CrossRefGoogle Scholar
Chortareas, G., Stasavage, D., and Sterne, G. (2002). Does it pay to be transparent? International evidence form central bank forecasts. Review 84(4), 99–118.Google Scholar
Clarida, R., Galí, J., and Gertler, M. (2000). Monetary policy rules and macroeconomic stability: evidence and some theory. Quarterly Journal of Economics 115, 147180.CrossRefGoogle Scholar
Cole, S. J. and Martnez-Garca, E. (2021). The effect of central bank credibility on forward guidance in an estimated new Keynesian model. Macroeconomic Dynamics, forthcoming.CrossRefGoogle Scholar
Cornand, C. and M’Baye, C. K. (2016). Band or point inflation targeting? An experimental approach. Journal of Economic Interaction and Coordination 13, 127.Google Scholar
Cornand, C. and M’Baye, C. K. (2018). Does inflation targeting matter? An experimental investigation. Macroeconomic Dynamics 22(2), 362–401.CrossRefGoogle Scholar
Cornand, C. and Heinemann, F. (2014). Experiments on monetary policy and central banking. In Duffy, J. (Ed.), Experiments in Macroeconomics (Research in Experimental Economics, Volume 17), pp. 167227. Emerald Group Publishing Limited.Google Scholar
Cornand, C. and Hubert, P. (2020). On the external validity of experimental inflation forecasts: A comparison with five categories of field expectations. Journal of Economic Dynamics and Control 110, 103746.CrossRefGoogle Scholar
Debortoli, D. and Galí, J. (2017). Monetary policy with heterogeneous agents: Insights from tank models. Manuscript, September.Google Scholar
Di Bartolomeo, G., Di Pietro, M., and Giannini, B. (2016). Optimal monetary policy in a New Keynesian model with heterogeneous expectations. Journal of Economic Dynamics and Control 73, 373–387.CrossRefGoogle Scholar
Dovern, J. and Hartmann, M. (2017). Forecast performance, disagreement, and heterogeneous signal-to-noise ratios. Empirical Economics 53, 6377.CrossRefGoogle Scholar
Dovern, J., Fritsche, U., and Slacalek, J. (2012). Disagreement among forecasters in G7 countries. The Review of Economics and Statistics 94(4), 1081–1096.CrossRefGoogle Scholar
Duffy, J. (2016). Macroeconomics: A survey of laboratory research. In Kagel, J. H. and Roth, A. E. (Eds.), The Handbook of Experimental Economics, Volume 2, Vol. 2, pp. 1–90. Princeton University Press.CrossRefGoogle Scholar
Duffy, J. and Heinemann, F. (2021). Central bank reputation, cheap talk and transparency as substitutes for commitment: Experimental evidence. Journal of Monetary Economics 117, 887903.CrossRefGoogle Scholar
Duffy, J. and U. Ünver, M. (2006). Asset price bubbles and crashes with near-zero-intelligence traders. Economic Theory 27(3), 537–563.CrossRefGoogle Scholar
Ehrmann, M., Eijffinger, S., and Fratzscher, M. (2012). The role of central bank transparency for guiding private sector forecasts. Scandinavian Journal of Economics 114(3), 1018–1052.CrossRefGoogle Scholar
Engle-Warnick, J. and Turdaliev, N. (2010). An experimental test of Taylor-type rules with inexperiences central bankers. Experimental Economics 13, 146166.CrossRefGoogle Scholar
Eusepi, S. and Preston, B. (2010). Central Bank communication and expectations stabilization. American Economic Journal: Macroeconomics 2(3), 235–271.CrossRefGoogle Scholar
Evans, G. W., Guse, E., and Honkapohja, S. (2008). Liquidity traps, learning and stagnation. European Economic Review 52(8), 1438–1463.CrossRefGoogle Scholar
Ferrero, G. and Secchi, A. (2010). Central bank’s macroeconomic projections and learning. National Bank of Poland Working Paper (72).CrossRefGoogle Scholar
Fischbacher, U., Hens, T., and Zeisberger, S. (2013). The impact of monetary policy on stock market bubbles and trading behavior: Evidence from the lab. Journal of Economic Dynamics and Control 37(10), 2104–2122.CrossRefGoogle Scholar
Frederick, S. (2005). Cognitive reflection and decision making. Journal of Economic Perspectives 19(4), 25–42.CrossRefGoogle Scholar
Fujiwara, I. (2005). Is the Central bank’s publication of economic forecasts influential? Economics Letters 89(3), 255–261.CrossRefGoogle Scholar
Geraats, P. M. (2002). Central bank transparency. Economic Journal 112(483), 532–565.CrossRefGoogle Scholar
Gode, D. K. and Sunder, S. (1993). Allocative efficiency of markets with zero-intelligence traders: Market as a partial substitute for individual rationality. Journal of Political Economy 101(1), 119–137.CrossRefGoogle Scholar
Gomez-Barrero, S. and Parra-Polania, J. A. (2014). Central bank strategic forecasting. Contemporary Economic Policy 32(4), 802–810.CrossRefGoogle Scholar
Goy, G., Hommes, C., and Mavromatis, K. (2020). Forward guidance and the role of Central bank credibility under heterogeneous beliefs. Journal of Economic Behavior & Organization.CrossRefGoogle Scholar
Greiner, B. (2015). Subject pool recruitment procedures: Organizing experiments with ORSEE. Journal of the Economic Science Association 1(1), 114–125.CrossRefGoogle Scholar
Hagenhoff, T. and Lustenhouwer, J. (2019). The rationality bias. BERG Working Paper Series 144.Google Scholar
Heinemann, F., Nagel, R., and Ockenfels, P. (2004). The theory of global games on test: Experimental analysis of coordination games with public and private information. Econometrica 72(5), 1583–1599.CrossRefGoogle Scholar
Hommes, C. (2011). The heterogeneous expectations hypothesis: Some evidence from the lab. Journal of Economic Dynamics and Control 35(1), 1–24.CrossRefGoogle Scholar
Hommes, C., Massaro, D., and Salle, I. (2019). Monetary and fiscal policy design at the zero lower bound - Evidence from the lab. Economic Inquiry 57(2), 1120–1140.CrossRefGoogle Scholar
Hommes, C., Massaro, D., and Weber, M. (2019). Monetary policy under behavioral expectations: Theory and experiment. European Economic Review 118, 193212.CrossRefGoogle Scholar
Hommes, C. and Lustenhouwer, J. (2019). Inflation targeting and liquidity traps under endogenous credibility. Journal of Monetary Economics 107, 4862.CrossRefGoogle Scholar
Hubert, P. (2014). FOMC forecasts as a focal point for private expectations. Journal of Money, Credit and Banking 46(7), 1381–1420.CrossRefGoogle Scholar
Jensen, C. (2016). Optimal forward guidance through economic projections in monetary policy, Technical report, University of South Carolina.Google Scholar
Kryvtsov, O. and Petersen, L. (2015). Expectations and monetary policy: Experimental evidence. Unpublished working paper, Simon Fraser University.Google Scholar
Kryvtsov, O. and Petersen, L. (2021). Central bank communication that works: Lessons from lab experiments. Journal of Monetary Economics 117, 760780.CrossRefGoogle Scholar
Kurz, M., Piccillo, G., and Wu, H. (2013). Modeling diverse expectations in an aggregated New Keynesian model. Journal of Economic Dynamics and Control 37(8), 1403–1433.CrossRefGoogle Scholar
Lei, V. and Noussair, C. N. (2002). An experimental test of an optimal growth model. The American Economic Review 92(3), 549–570.CrossRefGoogle Scholar
Lustenhouwer, J. (2021). Unanchored expectations: Self-reinforcing liquidity traps and multiple steady states. Macroeconomic Dynamics 25(4), 845–873.CrossRefGoogle Scholar
Mankiw, N. G., Reis, R., and Wolfers, J. (2004). Disagreement about inflation expectations. In NBER Macroeconomics Annual 2003, Vol. 18, NBER Chapters, pp. 209–270. National Bureau of Economic Research, Inc.Google Scholar
Marimon, R. and Sunder, S. (1993). Indeterminacy of equilibria in a hyperinflationary world: Experimental evidence. Econometrica 61(5), 1073–1107.CrossRefGoogle Scholar
Massaro, D. (2012). Bounded rationality and heterogeneous expectations in macroeconomics, Technical report, Ph.D. dissertation at the University of Amsterdam.Google Scholar
Mauersberger, F. (2021). Monetary policy rules in a non-rational world: A macroeconomic experiment. Journal of Economic Theory, 105203.CrossRefGoogle Scholar
Milani, F. (2011). Expectation shocks and learning as drivers of the business cycle. The Economic Journal 121(552), 379–401.CrossRefGoogle Scholar
Mishkin, F. S. (2004). Can Central bank transparency go too far? In Kent, C. and Guttmann, S. (Eds.), The Future of Inflation Targeting, RBA Annual Conference Volume, Reserve Bank of Australia.Google Scholar
Mokhtarzadeh, F. and Petersen, L. (2021). Coordinating expectations through central bank projections. Experimental Economics 24(3), 883–918.CrossRefGoogle Scholar
Morris, S. and Shin, H. S. (2002). Social value of public information. American Economic Review 92(5), 1521–1534.CrossRefGoogle Scholar
Pfajfar, D. and Zakelj, B. (2014). Experimental evidence on inflation expectation formation. Journal of Economic Dynamics and Control 44(C), 147–168.CrossRefGoogle Scholar
Pfajfar, D. and Zakelj, B. (2018). Inflation expectations and monetary policy design: Evidence from the laboratory. Macroeconomic Dynamics 22, 10351075.CrossRefGoogle Scholar
Rholes, R. and Petersen, L. (2021). Should central banks communicate uncertainty in their projections? Journal of Economic Behavior & Organization 183, 320–341.CrossRefGoogle Scholar
Romer, D. H. and Romer, C. D. (2000). Federal reserve information and the behavior of interest rates. American Economic Review 90(3), 429–457.CrossRefGoogle Scholar
Svensson, L. E. O. (2015). Day one keynote address: Forward guidance. International Journal of Central Banking 11(4), 19–64.Google Scholar
Taylor, J. B. (1993). Discretion versus policy rules in practice. In Carnegie-Rochester Conference Series on Public Policy, Vol. 39, pp. 195214. Elsevier.CrossRefGoogle Scholar
Walsh, C. E. (2007). Optimal economic transparency. International Journal of Central Banking 3(1), 5–36.Google Scholar

Save article to Kindle

To save this article to your Kindle, first ensure is added to your Approved Personal Document E-mail List under your Personal Document Settings on the Manage Your Content and Devices page of your Amazon account. Then enter the ‘name’ part of your Kindle email address below. Find out more about saving to your Kindle.

Note you can select to save to either the or variations. ‘’ emails are free but can only be saved to your device when it is connected to wi-fi. ‘’ emails can be delivered even when you are not connected to wi-fi, but note that service fees apply.

Find out more about the Kindle Personal Document Service.

The Stabilizing Effects of Publishing Strategic Central Bank Projections
Available formats

Save article to Dropbox

To save this article to your Dropbox account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you used this feature, you will be asked to authorise Cambridge Core to connect with your Dropbox account. Find out more about saving content to Dropbox.

The Stabilizing Effects of Publishing Strategic Central Bank Projections
Available formats

Save article to Google Drive

To save this article to your Google Drive account, please select one or more formats and confirm that you agree to abide by our usage policies. If this is the first time you used this feature, you will be asked to authorise Cambridge Core to connect with your Google Drive account. Find out more about saving content to Google Drive.

The Stabilizing Effects of Publishing Strategic Central Bank Projections
Available formats

Reply to: Submit a response

Please enter your response.

Your details

Please enter a valid email address.

Conflicting interests

Do you have any conflicting interests? *