Does the Federal Reserve have an informational advantage? you can bank on it
Abstract: Even in a world with rational expectations, it has been well established theoretically that if the central bank possesses information superior to that available to the public, there is room for effective and socially beneficial countercyclical monetary policy. This paper tests whether confidential information from bank supervisors could be one source of any such informational advantage. In particular, we examine whether information gained from bank supervision activities could substantially improve the forecasts of macroeconomic variables important for guiding monetary policy. We find that confidential supervisory information on bank ratings significantly improves private forecasts of inflation and unemployment rates, thus providing an informational advantage to the Federal Reserve.
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Provider: Federal Reserve Bank of Boston
Part of Series: Working Papers
Publication Date: 1998