A note on simulating the effect of monetary policy changes using only forward curves as inputs

Ansgar Rannenberg ()
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Ansgar Rannenberg: Economics and Research Department, National Bank of Belgium

No 471, Working Paper Research from National Bank of Belgium

Abstract: I show that in linear rational expectation models, the effect of a monetary tightening can be simulated using contemporaneous and anticipated monetary policy shocks that replicate the forward curves observed during the period of interest, normalized with the forward curve observed in the quarter before the tightening period of interest begins. In particular, the shocks in response to which the tightening occurs are irrelevant. All required information is incorporated in the normalized forward curves. I confirm this result via simulations and a formal proof. Then I use it to assess the effects of the recent monetary tightening in the Euro Area..

Keywords: :; policy; counterfactualsmonetary; policyinterest; rate; expectations (search for similar items in EconPapers)
JEL-codes: E43 E52 (search for similar items in EconPapers)
Pages: 25 pages
Date: 2025-01
New Economics Papers: this item is included in nep-cba and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:nbb:reswpp:202501-471

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