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The heterogeneous interpretation of forward guidance

Philippe Andrade ()

Research Bulletin, 2015, vol. 23, 9-14

Abstract: Agents interpreted differently the stance attached to the forward guidance policy of the Federal Reserve System. The heterogeneity of beliefs matters for the efficiency of this policy. Forward guidance is efficient only if private agents predominantly view it as an accommodative deviation from the normal times reaction function of the central bank. It can be detrimental if it is predominantly interpreted as a normal times reaction to a very bad shock.

Date: 2015-12
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Handle: RePEc:ecb:ecbrbu:2015:0023:2