Interest rate spreads and forward guidance
Christoph Kaufmann and
No 2186, Working Paper Series from European Central Bank
We provide evidence that liquidity premia on assets that are more relevant for private agents’ intertemporal choices than near-money assets increase in response to expansionary forward guidance announcements. We introduce a structural specification of liquidity premia based on assets’ differential pledgeability to a basic New Keynesian model to replicate this finding. This model predicts that output and inflation effects of forward guidance do not increase with the length of the guidance period and are substantially smaller than if liquidity premia were neglected. This indicates that there are no puzzling forward guidance effects when endogenous liquidity premia are taken into account. JEL Classification: E32, E42, E52
Keywords: forward guidance; liquidity premium; unconventional monetary policy (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-dge, nep-eec, nep-mac and nep-mon
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Working Paper: Interest Rate Spreads and Forward Guidance (2018)
Working Paper: Interest Rate Spreads and Forward Guidance (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20182186
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