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Forward Guidance as a Monetary Policy Rule

Mitsuru Katagiri
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Mitsuru Katagiri: Bank of Japan

No 16-E-6, Bank of Japan Working Paper Series from Bank of Japan

Abstract: Many central banks implement forward guidance according to an implicit or explicit policy rule in practice, and thus it is expected to influence the economy by changing expectations formation of private agents. In this paper, I investigate the effects of forward guidance particularly via expectations formation by formulating forward guidance as a monetary policy rule in a non-linear new Keynesian model. A quantitative analysis using the U.S. and Japanese data implies that a rule-based forward guidance significantly mitigates a decline in inflation and output growth in a crisis period via changing expectations formation.

Keywords: Forward Guidance; Expectations Formation; Effective Lower Bound; Particle Filter (search for similar items in EconPapers)
JEL-codes: E31 E32 E42 E52 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-ger, nep-mac and nep-mon
Date: 2016-06-27
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