Forward guidance: Communication, commitment, or both?

Marco Bassetto

Journal of Monetary Economics, 2019, vol. 108, issue C, 69-86

Abstract: Forward guidance has been suggested as a form of commitment (“Odyssean”) by the policymaker or as a way of conveying information (“Delphic”). I analyze the interaction between households and the central bank as a game in which the central bank sends messages. Without private information, the set of equilibrium payoffs is independent of any announcements: Pure Odyssean forward guidance is redundant. With private information, communication can have social value. Forward guidance is well suited to leverage preexisting credibility to communicate a central bank’s private information about its own preferences or beliefs.

Keywords: Cheap talk; Credibility; Odyssean; Delphic; Central bank (search for similar items in EconPapers)
JEL-codes: C73 E52 E58 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (14)

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Related works:
Working Paper: Forward Guidance: Communication, Commitment, or Both? (2019)
Working Paper: Forward guidance: communication, commitment, or both? (2019)
Working Paper: Forward Guidance: Communication, Commitment, or Both? (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:108:y:2019:i:c:p:69-86

DOI: 10.1016/j.jmoneco.2019.08.015

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