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Forward Guidance and Expectation Formation: A Narrative Approach

Christopher Sutherland ()

Staff Working Papers from Bank of Canada

Abstract: How forward guidance influences expectations is not yet fully understood. To study this issue, I construct central bank data that includes forward guidance and its attributes, central bank projections, and quantitative easing, which I combine with survey data. I find that, in response to a change in forward guidance, forecasters revise their interest rate forecasts in the intended direction by five basis points on average. The effect is not attributable to central bank information effects. Instead, when forming rate expectations, forecasters place full weight on their own inflation and growth forecasts and zero weight on those of the central bank.

Keywords: Central bank research; Monetary policy; Monetary policy communications; Transmission of monetary policy (search for similar items in EconPapers)
JEL-codes: D84 E58 (search for similar items in EconPapers)
Pages: 51 pages
Date: 2020-09
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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