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Forward guidance and heterogeneous beliefs

Philippe Andrade (), Gaetano Gaballo, Eric Mengus and Benoit Mojon ()

No 750, BIS Working Papers from Bank for International Settlements

Abstract: Central banks' announcements that rates are expected to remain low could signal either a weak macroeconomic outlook, which would slow expenditure, or a more accommodative stance, which may stimulate economic activity. We use the Survey of Professional Forecasters to show that, when the Fed gave guidance between Q3 2011 and Q4 2012, these two interpretations co-existed despite a consensus on low expected rates. We rationalise these facts in a New-Keynesian model where heterogeneous beliefs introduce a trade-off in forward guidance policy: leveraging on the optimism of those who believe in monetary easing comes at the cost of inducing excessive pessimism in non-believers.

Keywords: signaling channel; disagreement; optimal policy; zero lower bound; survey forecasts (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-cba, nep-mac and nep-mon
Date: 2018-10
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Related works:
Journal Article: Forward Guidance and Heterogeneous Beliefs (2019) Downloads
Working Paper: Forward Guidance and Heterogeneous Beliefs (2018) Downloads
Working Paper: Forward Guidance and Heterogeneous Beliefs (2016) Downloads
Working Paper: Forward guidance and heterogenous beliefs (2016) Downloads
Working Paper: Forward Guidance and Heterogeneous Beliefs (2015) Downloads
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