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The power of forward guidance: The role of social transfer

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  • Woo, Jinhee

Abstract

We examine the relationship between the generosity of social transfer and the stimulative effect of forward guidance. Increasing social transfer makes households less concerned about income risk, making them more responsive to future changes in interest rates. To assess this possibility quantitatively, we construct a New Keynesian incomplete market model economy that includes social transfer. The results show that the stimulative effect of forward guidance is stronger in the model economy with twice the level of social transfer than in the model economy with the current level of United States’ social transfer.

Suggested Citation

  • Woo, Jinhee, 2023. "The power of forward guidance: The role of social transfer," Economic Modelling, Elsevier, vol. 126(C).
    • Handle: RePEc:eee:ecmode:v:126:y:2023:i:c:s0264999323001992
    DOI: 10.1016/j.econmod.2023.106387
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    More about this item

    Keywords

    Forward guidance; Social transfer; Incomplete markets;
    All these keywords.

    JEL classification:

    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General

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