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The power of forward guidance in a quantitative TANK model

Rafael Gerke, Sebastian Giesen and Alexander Scheer

Economics Letters, 2020, vol. 186, issue C

Abstract: We quantify the macroeconomic effects of interest rate forward guidance in an estimated medium-scale Two-Agent New Keynesian (TANK) model. Although TANK models can in principle dampen or amplify the power of forward guidance compared to a representative agent model, our estimates indicate a dampening, as there is sufficient countercyclical redistribution. An interaction of forward guidance with asset purchases gives rise to non-linear effects that depend on the horizon of the interest rate peg.

Keywords: Forward guidance; Hand-to-mouth households; Redistribution; Bayesian estimation; Asset purchase program (search for similar items in EconPapers)
JEL-codes: E44 E52 E62 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:186:y:2020:i:c:s0165176519304197

DOI: 10.1016/j.econlet.2019.108828

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