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Central bank forward guidance and the signal value of market prices

Stephen Morris and Hyun Song Shin

No 692, BIS Working Papers from Bank for International Settlements

Abstract: The analysis suggests that relying less on market signals increases the effectiveness of central bank communication. In their eagerness to correctly anticipate policy moves, market participants risk giving too much weight to central bankers' utterances and not enough to assessing economic data. If central bankers, in turn, trust markets to guide their actions, they may end up creating a feedback loop that cancels out the value of the very market signals they rely on. In this circular relationship, market outcomes reflect central bank actions, which in turn reflect market outcomes.

Keywords: central bank communication; market expectations; crowding out (search for similar items in EconPapers)
JEL-codes: D82 E43 E58 (search for similar items in EconPapers)
Pages: 9 pages
Date: 2018-01
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (24)

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Journal Article: Central Bank Forward Guidance and the Signal Value of Market Prices (2018) Downloads
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