There is no Forward Guidance Puzzle

SeHyoun Ahn and Martin Blomhoff Holm

No 21853, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: According to the forward guidance puzzle, the economy responds more strongly to future than current interest rate cuts in many policy models used by central banks. We show that the puzzle arises only if three conditions are met: (1) a future interest rate cut is announced, (2) an interest rate peg precedes it, and (3) agents are assumed to attribute the peg exclusively to a sequence of monetary policy shocks. Absent any of these conditions, the response to a promised future interest rate cut weakens with the anticipation horizon, and forward guidance is no longer a forceful policy.

Keywords: Monetary policy; Forward guidance puzzle (search for similar items in EconPapers)
JEL-codes: E52 (search for similar items in EconPapers)
Date: 2026-08
References: Add references at CitEc
Citations:

Downloads: (external link)
https://cepr.org/publications/DP21853 (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:21853

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP21853

Access Statistics for this paper

More papers in CEPR Discussion Papers from Centre for Economic Policy Research 33 Great Sutton Street, London EC1V 0DX, UK.
Bibliographic data for series maintained by CEPR ().