Central Bank Forward Guidance and the Signal Value of Market Prices

Stephen Morris and Hyun Song Shin

AEA Papers and Proceedings, 2018, vol. 108, 572-77

Abstract: Central banks use forward guidance to steer market expectations of future monetary policy moves. At the same time, they rely on market prices to gauge the likely path of the economy and the appropriate stance of monetary policy. This two-way flow between market prices and forward guidance can create a circularity. Market signals may be rendered less informative when the central bank heeds market signals in formulating forward guidance, as those market signals reflect the diminished weight placed by market participants on their private signals.

JEL-codes: E31 E43 E52 E58 (search for similar items in EconPapers)
Date: 2018
Note: DOI: 10.1257/pandp.20181081
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Citations: View citations in EconPapers (23)

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Working Paper: Central bank forward guidance and the signal value of market prices (2018)
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