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Rationality and expectation formation at central banks

October 17, 2019

DECRG Kuala Lumpur Seminar Series

  • Recent literature shows that firms and professional forecasters are rarely rational when forming their expectations or forecast about the future state of the economy. For instance, they tend to overreact to news when forming their individual forecasts, whereas aggregated (or consensus) forecasts reveal an under-reaction to news (Coibion and Gorodnichenko (2015), Bordalo, Gennaioli, and Shleifer (2018a)). Theories put forward to explain these puzzles are rational inattention, sticky information or, more recently, diagnostic expectations. In this paper, we show that forecasts of central banks can also be subject to non-rationalities. We use official forecasts from the Reserve Bank of New Zealand (RBNZ) and provide evidence that the RBNZ also tends to overreact to news in its forecasts. Our findings are robust to various variables, specifications and approaches, and could have important implications for (the identification of) monetary policy surprises (in the spirit of Romer and Romer (2000) and Miranda-Agrippino and Ricco (2018)) and other monetary policy relevant areas.

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  • Özer Karagedikli


    Özer joined the SEACEN Centre in January 2019 after 17 years in central banking. He worked as an economic adviser in research, modelling, and forecasting teams of the Reserve Bank of New Zealand (RBNZ). He also had a stint at the Bank of England’s International Economic Analysis Division between 2008 and 2009. In addition to his role as an adviser at the RBNZ, he served as the secretary to the Monetary Policy Committee in 2003-2004, managed the External Research Network Initiative (ERNI), and served as the editor of the RBNZ Discussion Paper Series. He also served as a council member of the New Zealand Association of Economists (NZAE), a standing committee member of the Australasian Branch of Econometrics Society (ESAM), an associate editor for the Journal of Economic Surveys, and as a board member for the Orchestra Wellington. He organised/co-organised several conferences, workshops, courses and conference sessions, as well as policy meetings. In 2014 he co-edited the special issue of the International Journal of Central Banking with John Williams and Gunes Kamber. In 2017, he spent a semester as a visitor at Bilkent University in Ankara. He completed his studies at Victoria University of Wellington in New Zealand. Özer’s research interests are in the area of macroeconomics, monetary economics, forecasting, international linkages, housing and labour markets. His latest work includes forecast combinations for asymmetrically distributed variables, the effects of different types of forward guidance, housing supply and population growth, the role of job-to-job transitions and wage growth, and the role of different types of credit.


  • WHEN: Thursday, October 17, 2019; 12:30 -2:00PM
  • WHERE: World Bank Malaysia Office, Level 3, Sasana Kijang, No. 2, Jalan Dato’ Onn
  • RSVP: Kindly RSVP by Wednesday, October 16, 2019