Central Banking and Commercial Inflation Forecasting: Some New Evidence for the U.S.A.

This paper focuses on the issue of the information asymmetry between <p> the Federal Reserve Bank and commercial forecasters. Previous theoretical and <p> empirical evidence suggests that in the absence of confidential supervisory <p> information, commercial forecasters either under- or over- predict future <p> inflation rates. We test whether such information can improve commercial <p> forecasts during the period 1990:2 to 2002:2, using the change in the Federal <p> Funds rate as a proxy for information available to the Fed at the time its forecasts <p> are made. Our findings indicate that there is benefit to be derived from the <p> inclusion of confidential supervisory information in forecasting future inflation. <p> When the Fed receives information that results in contractionary policy, the <p> results show commercial forecasts are generally below those of the Fed. This <p> evidence is consistent with the main findings of earlier U.S studies, supporting <p> the existence of an informational advantage by the Fed which improves its <p> ability to conduct monetary policy. <p> JEL Classification: E17Banking supervision; Federal Reserve Bank; Monetary policy; Inflation forecasts; Information asymmetry E52, E58