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VELOCITY FUTURES MARKETS: DOES THE FED NEED A STRUCTURAL MODEL?
Author(s) -
JACKSON AARON L.,
SUMNER SCOTT
Publication year - 2006
Publication title -
economic inquiry
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.823
H-Index - 72
eISSN - 1465-7295
pISSN - 0095-2583
DOI - 10.1093/ei/cbj044
Subject(s) - futures contract , economics , financial economics , econometrics
Previous proposals suggesting monetary policy makers target private‐sector forecasts have been shown to be problematic. As policy becomes more effective, private‐sector forecasts become less informative. Under perfect stabilization private‐sector forecasts provide no useful guidance to monetary policy makers about economic shocks. We illustrate a way around this circularity problem by creating a policy futures market linked to the ratio of the (realization of the) policy goal for next period and the current instrument setting. The implication is that extensive information gathering is unnecessary, weakening the argument that central banks need a structural model to conduct policy. (JEL E52, E44, E42 )

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