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Can Discounting Alone Resolve the Forward Guidance Puzzle?

Yangyang Ji

MPRA Paper from University Library of Munich, Germany

Abstract: Numerically, we examine the expansionary effects of forward guidance at different horizons in Gabaix’s (2020) model and find that the role of discounting is limited and that unrealistic assumptions about parameter calibration are also required to resolve the forward guidance puzzle. We extend Gabaix’s (2020) model to include wage stickiness and find that discounting alone can resolve the puzzle even assuming standard calibration.

Keywords: Forward Guidance Puzzle; Discounting; New Keynesian Model; Wage Stickiness (search for similar items in EconPapers)
JEL-codes: E12 E21 E23 E52 E62 (search for similar items in EconPapers)
Date: 2022-06-23
New Economics Papers: this item is included in nep-mon
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