The forward guidance puzzle
AbstractWith short-term interest rates at the zero lower bound, forward guidance has become a key tool for central bankers, and yet we know little about its effectiveness. Standard medium-scale DSGE models tend to grossly overestimate the impact of forward guidance on the macroeconomy—a phenomenon we call the “forward guidance puzzle.” We explain why this is the case and describe one approach to addressing this issue.
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Bibliographic InfoPaper provided by Federal Reserve Bank of New York in its series Staff Reports with number 574.
Date of creation: 2012
Date of revision:
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-11-11 (All new papers)
- NEP-DGE-2012-11-11 (Dynamic General Equilibrium)
- NEP-MAC-2012-11-11 (Macroeconomics)
- NEP-MON-2012-11-11 (Monetary Economics)
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