The Stabilizing Role of Forward Guidance: A Macro Experiment

Steffen Ahrens, Joep Lustenhouwer and Michele Tettamanzi

VfS Annual Conference 2017 (Vienna): Alternative Structures for Money and Banking from Verein für Socialpolitik / German Economic Association

Abstract: We study if central banks can manage market expectations by means of forward guidance in a New Keynesian learning-to-forecast experiment. Subjects observe public inflation projections by the central bank along with the historic development of the economy and subsequently submit their own inflation forecasts. We find that the central bank can significantly manage market expectations through forward guidance and that this management strongly supports monetary policy in stabilizing the economy.

JEL-codes: C92 E32 E37 E58 (search for similar items in EconPapers)
Date: 2017
New Economics Papers: this item is included in nep-cba, nep-exp, nep-mac and nep-mon
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Citations: View citations in EconPapers (15)

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Related works:
Working Paper: The stabilizing role of forward guidance: A macro experiment (2018)
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Persistent link: https://EconPapers.repec.org/RePEc:zbw:vfsc17:168063

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