Forward guidance matters: Disentangling monetary policy shocks

Leonardo Ferreira

Journal of Macroeconomics, 2022, vol. 73, issue C

Abstract: Central banks have usually employed short-term rates as the main instrument of monetary policy. In the last decades, however, forward guidance has also become a central tool. This paper combines two sources of extraneous information - high frequency surprises and narrative evidence - with sign restrictions in a structural vector autoregressive (VAR) model to disentangle forward guidance from conventional monetary policy. Results show that conventional monetary policy has the expected effects on industrial production even in a recent US sample and that forward guidance is an effective policy tool, being at least as strong as conventional monetary policy.

Keywords: Forward guidance; Monetary policy; Narrative sign restrictions; High-frequency identification (search for similar items in EconPapers)
JEL-codes: C11 C50 E30 E32 E43 E52 E58 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Forward Guidance Matters: disentangling monetary policy shocks (2020)
Working Paper: Forward Guidance Matters: Disentangling Monetary Policy Shocks (2020)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jmacro:v:73:y:2022:i:c:s0164070422000246

DOI: 10.1016/j.jmacro.2022.103423

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