We present a measure of subjective interest rate uncertainty and explore its effects on the economy for G7 countries and Spain, during the period 1993-2015. This measure is a summary of uncertainty among professional forecasters over the future level of interest rates. We find that subjective interest rate uncertainty is harmful to the economy, with both recessionary and deflationary effects. These effects vary across countries in terms of magnitude and persistence. Differences in economic structures and institutional frameworks can explain this heterogeneity. Central banks can play an important role in mitigating interest rate uncertainty by designing strategies to enhance transparency and communication.
Updated on: 09/19/2017 11:42