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Can more public information raise uncertainty? The international evidence on forward guidance

Michael Ehrmann (), Gaetano Gaballo (), Peter Hoffmann and Georg Strasser ()

No 2263, Working Paper Series from European Central Bank

Abstract: Central banks have used different types of forward guidance, where the forward guidance horizon is related to a state contingency, a calendar date or left open-ended. This paper reports cross-country evidence on the impact of these different types of forward guidance on the sensitivity of bond yields to macroeconomic news, and on forecaster disagreement about the future path of interest rates. We show that forward guidance mutes the response to macroeconomic news in general, but that calendar-based forward guidance with a short horizon counterintuitively raises it. Using a model where agents learn from market signals, we show that the release of more precise public information about future rates lowers the informativeness of market signals and, as a consequence, may increase uncertainty and amplify the reaction of expectations to macroeconomic news. However, when the increase in precision of public information is sufficiently large, uncertainty is unambiguously reduced. JEL Classification: D83, E43, E52, E58

Keywords: central bank communication; disagreement; forward guidance; heterogeneous beliefs; macroeconomic news (search for similar items in EconPapers)
Date: 2019-04
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Note: 203739
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20192263

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