Forward Guidance for Monetary Policy: Is It Desirable?
AbstractIn this paper we assess whether forward guidance for monetary policy regarding the future path of interest rates is desirable. We distinguish between two cases where forward guidance for monetary policy may be helpful. First, forward guidance may reveal private information of the central bank. We argue that vague, non-binding statements may be desirable. Second, forward guidance may be used as a commitment device. In this case, policy forecasts may be desirable in a classic inflation-bias framework but not in a New Keynesian framework.
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Bibliographic InfoPaper provided by CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich in its series CER-ETH Economics working paper series with number 08/84.
Length: 21 pages
Date of creation: Apr 2008
Date of revision:
central banks; transparency; commitment; Federal Reserve; policy inclinations; signaling;
Find related papers by JEL classification:
- E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
- D70 - Microeconomics - - Analysis of Collective Decision-Making - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2008-04-15 (All new papers)
- NEP-CBA-2008-04-15 (Central Banking)
- NEP-MAC-2008-04-15 (Macroeconomics)
- NEP-MON-2008-04-15 (Monetary Economics)
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