Abstract
This paper provides an empirical assessment of the power of forward guidance at different horizons, shedding new light on the strength of the “forward guidance puzzle”. Our identification strategy allows us to disentangle target and forward guidance shocks from central bank private information. We investigate to what extent the horizon of guidance matters for its macroeconomic effects, and find that as the communication horizon lengthens, its impact on output and inflation weakens. This runs contrary to the prediction from standard New Keynesian models that the power of forward guidance increases with its horizon.
| Original language | English |
|---|---|
| Article number | 102536 |
| Journal | Journal of International Money and Finance |
| Volume | 120 |
| DOIs | |
| Publication status | Published - Feb 2022 |
| Externally published | Yes |
Bibliographical note
Publisher Copyright:© 2021 Elsevier Ltd
Funding
We thank Jeffrey Campbell, Marc Giannoni, Peter Karadi, Karel Mertens, Giovanni Ricco, Juan Rubio-Ramirez, David Vestin, Min Wei, an anonymous referee from the Norges Bank Working Paper series, an anonymous referee from Journal of International Money and Finance, seminar participants at Norges Bank and The Better Policy Project, and participants at SNDE, CEF, the Bank of Canada-Norges Bank Macroeconomic Workshop, the Spring Meeting of Young Economists, the SNB Research Conference, and the Workshop on Low Interest Rate and Unconventional Monetary Policy for comments.
| Funders | Funder number |
|---|---|
| Norges Bank | |
| Charles Edison Fund |
Keywords
- Central bank information
- Forward guidance puzzle
- High-frequency identification
- Monetary policy
- Structural VAR