Beliefs formation and the puzzle of forward guidance power
Giovanni Di Bartolomeo (),
Elton Beqiraj and
Marco Di Pietro ()
EconStor Preprints from ZBW - Leibniz Information Centre for Economics
We study the extent to which the belief-formation process affects the dynamics of macroeconomic variables when the central bank uses forward guidance. Standard sticky-price models imply that far future forward guidance has huge and implausible effects on current outcomes, these effects grow in its horizon (forward guidance power puzzle). By a parsimonious macro-model that allows for the role of bounded rationality and heterogeneous agents, we obtain tempered responses for real and nominal variables.
Keywords: forward guidance power; heterogeneous agents; bounded rationality; monetary policy; announcements (search for similar items in EconPapers)
JEL-codes: E40 E50 E21 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-mac and nep-mon
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Working Paper: Beliefs formation and the puzzle of forward guidance power (2017)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:esprep:175198
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