Czech Economic Review 6 (2012) 244–264 Acta Universitatis Carolinae Oeconomica Received 12 April 2012; Accepted 20 September 2012 Central Bank Forecasts as a Coordination Device: Evidence from the Czech Republic Jan Fil´ aˇ cek * , Branislav Saxa ** Abstract Do private analysts coordinate their forecasts via central bank forecasts? In this paper, we examine private and central bank forecasts for the Czech Republic. The evolution of the standard deviation of private forecasts as well as the distance from the central bank’s forecasts are used to study whether a coordination effect exists, how it is influenced by uncertainty, and the effects of changes in central bank communication. The results suggest that private analysts coordinate their forecasts for the interest rate and inflation, while no or limited evidence exists for the exchange rate and GDP growth. Keywords Central bank, forecast, coordination JEL classification E37, E47, E58, G14 *** 1. Introduction Central bank transparency has become one of the most prominent features of monetary policy-making over the last two decades. Central banks have enhanced their trans- parency in many respects. Publishing minutes and votes cast, describing the outlook for the economy and its risks, commenting on statistical releases and other disclosures have all become a part of a central banker’s daily job. In this regard, the publication of central bank forecasts is of utmost importance. 1 These forecasts contain complex information about the central bank’s assessment of the current state of the economy and its vision of future economic developments. This vision usually, and increasingly, includes the reaction of the central bank and sends an important signal to market par- ticipants on the future stance of monetary policy. Forecasts are also usually a bench- mark against which the decision-making body evaluates risks and makes a final deci- sion. In this paper we focus on another important aspect of publishing the central bank forecast—its coordination role for private agents’ expectations and forecasts. The expectations of financial market participants are very important for any central bank. If private expectations are broadly in line with central bank expectations, the * Corresponding author. Czech National Bank, Monetary and Statistics Department, Na Pˇ r´ ıkopˇ e 28, 11503 Prague 1, Czech Republic. Phone +420 224 413 726, Email: jan.filacek@cnb.cz. ** Czech National Bank, Monetary and Statistics Department, Na Pˇ r´ ıkopˇ e 28, 11503 Prague 1, Czech Re- public. Phone +420 224 413 468, Email: branislav.saxa@cnb.cz. 1 The first central bank to publish its forecast was the Reserve Bank of New Zealand in 1985 (Reserve Bank of New Zealand 1985). Since then, the publication of central bank forecasts for inflation and real economic activity has become standard practice. Some central banks go further and also publish interest rate and exchange rate forecasts. 244 Czech Economic Review, vol. 6, no. 3