Credible Forward Guidance

Taisuke Nakata and Takeki Sunakawa
Additional contact information
Taisuke Nakata: Associate Professor, Faculty of Economics, University of Tokyo (E-mail: taisuke.nakata@e.u-tokyo.ac.jp)
Takeki Sunakawa: Associate Professor, Faculty of Economics, Hitotsubashi University (E-mail: t.sunakawa@r.hit-u.ac.jp)

No 22-E-06, IMES Discussion Paper Series from Institute for Monetary and Economic Studies, Bank of Japan

Abstract: How can the central bank credibly implement a "lower-for- longer" strategy? To answer this question, we analyze a series of optimal sustainable policy problems-indexed by the duration of reputational loss- in a sticky-price model with an effective lower bound (ELB) constraint on nominal interest rates. We find that, even without an explicit commitment technology, the central bank can still credibly keep the policy rate at the ELB for an extended period-though not as extended as under the optimal commitment policy-and meaningfully mitigate the adverse effects of the ELB constraint on economic activity.

Keywords: Average Inflation Targeting; Effective Lower Bound; Forward Guidance; Sustainable Plan; Time-Consistency (search for similar items in EconPapers)
JEL-codes: E32 E52 E61 E62 E63 (search for similar items in EconPapers)
Date: 2022-04
New Economics Papers: this item is included in nep-ban, nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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Related works:
Journal Article: Credible Forward Guidance (2023)
Working Paper: Credible Forward Guidance (2020)
Working Paper: Credible Forward Guidance (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:ime:imedps:22-e-06

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