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Forward Guidance for Monetary Policy: Is It Desirable?

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Author Info
Hans Gersbach () (CER-ETH - Center of Economic Research at ETH Zurich, Switzerland)
Volker Hahn () (CER-ETH - Center of Economic Research at ETH Zurich, Switzerland)

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Abstract

In 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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Publisher Info
Paper provided by CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich in its series Economics working paper series with number 08/84.

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Length: 21 pages
Date of creation: Apr 2008
Date of revision:
Handle: RePEc:eth:wpswif:08-84

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Related research
Keywords: central banks; transparency; commitment; Federal Reserve; policy inclinations; signaling;

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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

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Christa N. Brunnschweiler & Erwin H. Bulte, 2006. "The Resource Curse Revisited and Revised: A Tale of Paradoxes and Red Herrings," Economics working paper series 06/61, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich. [Downloadable!]
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  2. Thomas M. Steger & Lucas Bretschger, 2005. "Globalization, the volatility of intermediate goods prices and economic growth," Economics working paper series 05/40, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich. [Downloadable!]
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    Other versions:
  4. Clive Bell & Hans Gersbach, 2006. "Growth and Enduring Epidemic Diseases," Economics working paper series 06/57, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich. [Downloadable!]
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  5. Moritz Schularick & Thomas Steger, 2006. "Does Financial Integration Spur Economic Growth? New Evidence from the First Era of Financial Globalization," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
    Other versions:
  6. Gersbach, Hans & Winkler, Ralph, 2007. "On the Design of Global Refunding and Climate Change," CEPR Discussion Papers 6379, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
    Other versions:
  7. Gersbach, Hans / Fahrenberger, Theresa, 2008. "Minority Voting and Long-term Decisions," CESifo Working Paper Series CESifo Working Paper No. , CESifo Group Munich. [Downloadable!]
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  8. Corrado Di Maria & Simone Valente, 2006. "The Direction of Technical Change in Capital-Resource Economies," Economics working paper series 06/50, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich. [Downloadable!]
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  9. Sjak Smulders & Lucas Bretschger & Hannes Egli, 2005. "Economic growth and the diffusion of clean technologies : explaining environmental Kuznets," Economics working paper series 05/42, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich. [Downloadable!]
  10. Karen Pittel & Amigues Jean-Pierre & Thomas Kuhn, 2005. "Endogenous growth and recycling : a material balance approach," Economics working paper series 05/37, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich. [Downloadable!]
  11. Gersbach, Hans & Muller, Markus, 2006. "Elections, Contracts and Markets," CEPR Discussion Papers 5717, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  12. Glenn D. Rudebusch & John C. Williams, 2006. "Revealing the Secrets of the Temple: The Value of Publishing Central Bank Interest Rate Projections," NBER Working Papers 12638, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  13. Oliver Grimm & Stefan Ried, 2007. "Macroeconomic Policy in a Heterogeneous Monetary Union," Economics working paper series 07/67, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich. [Downloadable!]
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  14. Hans Gersbach & Hans Haller, 2007. "Hierarchical Trade and Endogenous Price Distortions," Economics working paper series 07/72, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich. [Downloadable!]
  15. Damian S. Damianov & Johannes Gerd Becker, 2008. "Auctions with Variable Supply: Uniform Price versus Discriminatory," Economics working paper series 08/80, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich. [Downloadable!]
  16. Hans Gersbach & Maik T. Schneider & Olivier Schneller, 2008. "On the Design of Basic-Research Policy," Economics working paper series 08/79, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich. [Downloadable!]
  17. Christa N. Brunnschweiler & Erwin Bulte, 2008. "Natural Resources and Violent Conflict: Resource Abundance, Dependence and the Onset of Civil Wars," Economics working paper series 08/78, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich. [Downloadable!]
  18. Christian Bjørnskov & Axel Dreher & Justina Fischer, 2007. "The bigger the better? Evidence of the effect of government size on life satisfaction around the world," Public Choice, Springer, vol. 130(3), pages 267-292, March. [Downloadable!] (restricted)
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  19. Theresa Fahrenberger & Hans Gersbach, 2007. "Legislative Process with Open Rules," Economics working paper series 07/64, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich. [Downloadable!]
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  20. Andreas Schäfer & Simone Valente, 2007. "Habit Formation, Dynastic Altruism, and Population Dynamics," Economics working paper series 07/77, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich. [Downloadable!]
Full references

Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Edward J. Balistreri & Russell H. Hillberry & Thomas F. Rutherford, 2008. "Structural Estimation and Solution of International Trade Models with Heterogeneous Firms," Economics working paper series 08/89, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich. [Downloadable!]
    Other versions:
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