Central Bank Transparency and the Consensus Forecast : What Does the Economist Poll of Forecasters Tell Us?

We are interested, in this paper, in studying the effects that central banks exert on private sector forecasts by means of their transparency and communication measures. We analyze the impact of central bank transparency on the accuracy of the consensus forecasts (usually calculated as the mean or the median of the forecasts from a panel of individual forecasters) for a series of macroeconomic variables: inflation, Real output growth and the current account as a share of GDP for 7 advanced economies. Interestingly, while it is found of significance of central bank transparency and communication measures on forecasts themselves, there appear some limits of the same measures when we study their impact on forecast errors. Our findings, indeed, suggest that deviations of the economic forecast data from the realized ones (RGDP and the current account as a share of GDP) are a bit affected by the central bank transparency measures considered in the paper. Inflation forecast errors, especially, are not affected at all by those measures. A possible explanation (among others) could be attributed to the inefficiency of the mean forecasts. Inefficiency of the consensus forecasts is not a new issue from a theoretical point of view, but its empirical relevance is for the first time (to our knowledge) questioned on data extracted from the Economist poll of forecasters. More particularly, our paper extracts practical implications over the effectiveness of transparent announcements in forecast formation process. We rely on two noisy information models, though having different mechanisms (Kim et al, 2001; Morris and Shin, 2002) both of which are consistent with overweighting issue to explain the inefficiency of the consensus forecast