Forward Guidance and Heterogeneous Beliefs
Philippe Andrade (),
Gaetano Gaballo (),
Eric Mengus and
Benoit Mojon ()
Working papers from Banque de France
We analyze the effects of forward guidance when agents have heterogeneous interpretations of whether forward guidance contains a commitment on future policy actions. Using survey expectations, we document that forward guidance lowered disagreement about future short-term interest rates to historically low levels while it did not affect much disagreement about future inflation and future consumption. We introduce heterogenous beliefs on future policy and fundamentals in an otherwise standard New-Keynesian model. We show that, because the commitment type of the central bank is unobserved, agreement on the future path of interest rates can coexist with disagreement on the length of the trap. Such heterogeneity of beliefs can strongly mitigate the effectiveness of forward guidance. It also alters the optimal policy at the zero lower bound compared to a situation where beliefs are homogenous.
Keywords: monetary policy; forward guidance; communication; heterogeneous beliefs; disagreement. (search for similar items in EconPapers)
JEL-codes: E31 E52 E65 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dge, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (42) Track citations by RSS feed
Downloads: (external link)
https://publications.banque-france.fr/sites/defaul ... g-paper_573_2015.pdf (application/pdf)
Working Paper: Forward guidance and heterogeneous beliefs (2018)
Working Paper: Forward Guidance and Heterogeneous Beliefs (2018)
Working Paper: Forward Guidance and Heterogeneous Beliefs (2016)
Working Paper: Forward guidance and heterogenous beliefs (2016)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:573
Access Statistics for this paper
More papers in Working papers from Banque de France Banque de France 31 Rue Croix des Petits Champs LABOLOG - 49-1404 75049 PARIS. Contact information at EDIRC.
Bibliographic data for series maintained by Michael brassart ().