Forward guidance and expectation formation: A narrative approach

Christopher S Sutherland

No 1024, BIS Working Papers from Bank for International Settlements

Abstract: How forward guidance influences expectations is not yet fully understood. To study this issue, I construct central bank data that includes forward guidance and its attributes, central bank projections, and quantitative easing, which I combine with survey data. I describe how, when, and where forward guidance has worked. I find that forecasters revise their interest rate forecasts in the intended direction by five basis points on average following a change in forward guidance. I provide country estimates for The Federal Reserve, European Central Bank, Bank of England, Bank of Canada, Reserve Bank of Australia, Reserve Bank of New Zealand, Sveriges Riksbank, and Norges Bank. I offer preliminary evidence that commitment-based forward guidance is exceedingly rare, but can strongly amplify forward guidance. Finally, I provide estimates of the extent to which this effect may be attributable to central bank information effect.

Keywords: forward guidance; central bank communication; information effects; expectations; survey data (search for similar items in EconPapers)
JEL-codes: D83 D84 E37 E52 E58 (search for similar items in EconPapers)
Pages: 39 pages
Date: 2022-06
New Economics Papers: this item is included in nep-cba and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:bis:biswps:1024

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