Forward Guidance and Heterogeneous Beliefs

Philippe Andrade, Gaetano Gaballo, Eric Mengus and Benoit Mojon

American Economic Journal: Macroeconomics, 2019, vol. 11, issue 3, 1-29

Abstract: Central banks' announcements that rates are expected to remain low could signal either a weak macroeconomic outlook, which would slow expenditures, or a more accommodative stance, which may stimulate economic activity. We use the Survey of Professional Forecasters to show that, when the Fed gave guidance between 2011:III and 2012:IV, these two interpretations coexisted despite a consensus on low expected rates. We rationalize these facts in a New-Keynesian model where heterogeneous beliefs introduce a trade-off in forward guidance policy: leveraging on the optimism of those who believe in monetary easing comes at the cost of inducing excess pessimism in non-believers.

JEL-codes: D83 E12 E43 E52 E58 E65 (search for similar items in EconPapers)
Date: 2019
Note: DOI: 10.1257/mac.20180141
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Citations: View citations in EconPapers (108)

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Related works:
Working Paper: Forward guidance and heterogeneous beliefs (2018)
Working Paper: Forward Guidance and Heterogeneous Beliefs (2018)
Working Paper: Forward Guidance and Heterogeneous Beliefs (2016)
Working Paper: Forward guidance and heterogenous beliefs (2016)
Working Paper: Forward Guidance and Heterogeneous Beliefs (2015)
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