Optimal Central Bank Forward Guidance

Eunmi Ko
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Eunmi Ko: Rochester Institute of Technology

International Journal of Central Banking, 2023, vol. 19, issue 4, 401-447

Abstract: When the future state of the economy is uncertain, yet a central bank has more information about the possible scenarios, how should the central bank communicate its private information to the public? This paper analyzes the optimal tone of central bank Delphic forward guidance using the Bayesian persuasion model (Kamenica and Gentzkow 2011). Assuming that monetary policy is an exogenously given function over the states of the economy and that the central bank is precommitted to a forward-guidance policy function, under certain conditions, the optimal tone of communication about the uncertain future is overly pessimistic.

JEL-codes: D82 D83 E58 (search for similar items in EconPapers)
Date: 2023
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ijc:ijcjou:y:2023:q:4:a:9

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