Does my model predict a forward guidance puzzle?

Christopher Gibbs and Nigel McClung

No 19/2019, Bank of Finland Research Discussion Papers from Bank of Finland

Abstract: We provide suffcient conditions for when a rational expectations structural model predicts bounded responses of endogenous variables to forward guidance announcements. The conditions coincide with a special case of the well-known (E)xpectation-stability conditions that govern when agents can learn a Rational Expectations Equilibrium. Importantly, we show that the conditions are distinct from the determinacy conditions. We show how the conditions are useful for diagnosing the features of a model that contribute to the Forward Guidance Puzzle and reveal how to construct well-behaved forward guidance predictions in standard medium-scale DSGE models.

JEL-codes: D83 D84 E31 E32 E52 (search for similar items in EconPapers)
Date: 2019
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https://www.econstor.eu/bitstream/10419/212453/1/bof-rdp2019-019.pdf (application/pdf)

Related works:
Journal Article: Does my model predict a forward guidance puzzle? (2023)
Working Paper: Does my model predict a forward guidance puzzle? (2019)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:bofrdp:rdp019

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