The macroeconomic effects of forward communication

Leif Brubakk, Saskia ter Ellen, Ørjan Robstad and Hong Xu

Journal of International Money and Finance, 2022, vol. 120, issue C

Abstract: This paper provides an empirical assessment of the power of forward guidance at different horizons, shedding new light on the strength of the “forward guidance puzzle”. Our identification strategy allows us to disentangle target and forward guidance shocks from central bank private information. We investigate to what extent the horizon of guidance matters for its macroeconomic effects, and find that as the communication horizon lengthens, its impact on output and inflation weakens. This runs contrary to the prediction from standard New Keynesian models that the power of forward guidance increases with its horizon.

Keywords: Monetary policy; Forward guidance puzzle; High-frequency identification; Structural VAR; Central bank information (search for similar items in EconPapers)
JEL-codes: E43 E44 E52 E58 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Working Paper: The macroeconomic effects of forward communication (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:120:y:2022:i:c:s026156062100187x

DOI: 10.1016/j.jimonfin.2021.102536

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