The macroeconomic effects of forward communication

Leif Brubakk, Saskia ter Ellen, Ørjan Robstad and Hong Xu

No 2019/20, Working Paper from Norges Bank

Abstract: This paper provides an empirical assessment of the power of forward guidance at different horizons, shedding new light on the strength of the “forward guidance puzzle”. Our identification strategy allows us to disentangle the change in future interest rates stemming from deviations from the systematic part of monetary policy (“target” and “forward guidance” shocks) and changes in future interest rates that are due to unanticipated revisions in the central bank’s economic outlook (“information” shocks). This enables us to make a qualitative assessment of the relative importance of forward guidance. We investigate to what extent the horizon of guidance matters for its macroeconomic effects, and find that the more forward the shock is, the weaker is its impact on output and inflation. This runs contrary to the prediction from standard New Keynesian models that the power of forward guidance increases with its horizon.

Keywords: monetary policy; forward guidance puzzle; high-frequency identification; structural VAR; central bank information (search for similar items in EconPapers)
JEL-codes: E43 E44 E52 E58 (search for similar items in EconPapers)
Pages: 29 pages
Date: 2019-11-04
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 (3)

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https://hdl.handle.net/11250/2652993

Related works:
Journal Article: The macroeconomic effects of forward communication (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:bno:worpap:2019_20

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