Does my model predict a forward guidance puzzle?

Christopher Gibbs and Nigel McClung

Review of Economic Dynamics, 2023, vol. 51, 393-423

Abstract: We show how to characterize the economic forces that generate the forward guidance puzzle in a wide variety of structural macroeconomic models. We accomplish this by showing that studying the predictions of forward guidance announcements is essentially the same as conducting E-stability analysis under adaptive learning. We show that the Iterative E-stability criterion identifies all of the most prominent forward guidance puzzle resolutions proposed in the literature, provides ways to evaluate their robustness, shows how new resolutions may be constructed, and is scalable to quantitatively relevant models. We show some common resolutions are robust while others are not. We also devise a novel solution to the forward guidance puzzle: sunspots. (Copyright: Elsevier)

Keywords: Forward Guidance Puzzle; Expectations; Learning; Stability (search for similar items in EconPapers)
JEL-codes: D83 D84 E31 E32 E52 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Working Paper: Does my model predict a forward guidance puzzle? (2019)
Working Paper: Does my model predict a forward guidance puzzle? (2019)
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DOI: 10.1016/j.red.2023.03.001

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