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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

Abstract: 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
Date: 2017
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Citations: View citations in EconPapers (3) Track citations by RSS feed

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Working Paper: Beliefs formation and the puzzle of forward guidance power (2017) Downloads
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