EconPapers    
Economics at your fingertips  
 

Attenuating the Forward Guidance Puzzle: Implications for Optimal Monetary Policy

Ryota Ogaki, Sebastian Schmidt (), Taisuke Nakata and Paul Yoo

No 2018-049, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: We examine the implications of less powerful forward guidance for optimal policy using a sticky-price model with an effective lower bound (ELB) on nominal interest rates as well as a discounted Euler equation and Phillips curve. When the private-sector agents discount future economic conditions more in making their decisions today, an announced cut in future interest rates becomes less effective in stimulating current economic activity. While the implication of such discounting for optimal policy depends on its degree, we find that, under a wide range of plausible degrees of discounting, it is optimal for the central bank to compensate for the reduced effect of a future rate cut by keeping the policy rate at the ELB for longer.

Keywords: Optimal policy; Discounted euler equation; Discounted phillips curve; Forward guidance; Effective lower bound (search for similar items in EconPapers)
JEL-codes: E52 E58 E61 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
Date: 2018-07-19, Revised 2018-07-19
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://www.federalreserve.gov/econres/feds/files/2018049pap.pdf (application/pdf)

Related works:
Journal Article: Attenuating the forward guidance puzzle: Implications for optimal monetary policy (2019) Downloads
Working Paper: Attenuating the forward guidance puzzle: implications for optimal monetary policy (2019) Downloads
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:fip:fedgfe:2018-49

DOI: 10.17016/FEDS.2018.049

Access Statistics for this paper

More papers in Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.) Contact information at EDIRC.
Bibliographic data for series maintained by Ryan Wolfslayer ; Keisha Fournillier ().

 
Page updated 2020-01-14
Handle: RePEc:fip:fedgfe:2018-49