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Strategies & Market Trends : ahhaha's ahs -- Ignore unavailable to you. Want to Upgrade?

To: ahhaha who wrote (2547)	6/27/2001 4:04:42 PM
From: GraceZ	Respond to of 24758

This guy thinks what the Fed did today is irrelevant to the market. traders-talk.com

To: ahhaha who wrote (2547)	6/28/2001 1:35:16 AM
From: ahhaha	Read Replies (1) \| Respond to of 24758

"How Should Monetary Policy Be Conducted in an Era of Price Stability", Lars E. O. Svensson, Federal Reserve Bank of Kansas City, 1999 ... Forecast targeting 3.2 Monetary policy affects the economy with considerable lags. Normally, current inflation and output are, to a large extent, determined by previous decisions of firms and households. Normally, current monetary policy actions can only affect the future levels of inflation and the output gap, in practice, with substantial lags and with the total effects spread out over several quarters. This makes forecasts of the target variables crucial in monetary policy. Let us preliminarily make the assumption that the transmission mechanism is approximately linear, in the sense that the future target variables depend linearly on the current state of the economy and the instrument. Furthermore, make the preliminary assumption that any uncertainty about the transmission mechanism and the state of the economy shows up as additive uncertainty about future target variables, in the sense that the degree of uncertainty about future target variables only depends on the horizon but not on the current state of the economy and the instrument setting. It is then a standard result in optimal-control theory that so-called certainty equivalence applies, and that optimal policy need only focus on conditional mean forecasts of the future target variables, forecasts conditional on the central bank's current information and a particular future path for the instrument.Because this means treating the forecasts as target variables, the procedure can be called forecast targeting. Svensson says, "the degree of uncertainty about future target variables only depends on the horizon but not on the current state of the economy and the instrument setting". In theoretical physics we do our best to avoid "horizons" because they're inherently indefinite. The hand waiving usage here is explicitly ambiguous. The degree of uncertainty of target variables at the horizon is unlimited unless the data defining the target converges. That data is necessarily built on the current state of the economy. It certainly can't be built on the future state of the economy. Svensson disagrees, "optimal policy need only focus on conditional mean forecasts of the future target variables, forecasts conditional on the central bank's current information and a particular future path for the instrument." Now we can see why Taylor and Svensson agree with each other. They both like to beg the question. The coup de grace though is this line: "Because this means treating the forecasts as target variables, the procedure can be called forecast targeting". Can you believe how these guys reify their own intellectual gendanken into something upon which someone(not them) can run an experiment? Svensson is saying FED ought to target their own forecasts! Unbelievable.