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Comment on “The limits of forward guidance” by Jeffrey R. Campbell, Filippo Ferroni, Jonas D. M. Fisher and Leonardo Melosi

Author

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  • Bielecki, Marcin
  • Brzoza-Brzezina, Michał
  • Kolasa, Marcin

Abstract

This note discusses the article “The limits of forward guidance” by Jeffrey R. Campbell, Filippo Ferroni, Jonas D. M. Fisher and Leonardo Melosi. The Authors make an excellent contribution to the literature on solving the forward guidance puzzle by proposing that central bank communication is imperfect (noisy) and thus announcements of the monetary policy stance many periods ahead have a limited impact on agents’ decisions. By estimating a rich DSGE model, using a wide set of US data including interest rate futures, they quantify the precision of the Fed’s communication. We show that estimating a linear model without explicitly accounting for the ELB constraint may lead to biased results that overstate the imperfections of central bank communication.

Suggested Citation

  • Bielecki, Marcin & Brzoza-Brzezina, Michał & Kolasa, Marcin, 2019. "Comment on “The limits of forward guidance” by Jeffrey R. Campbell, Filippo Ferroni, Jonas D. M. Fisher and Leonardo Melosi," Journal of Monetary Economics, Elsevier, vol. 108(C), pages 135-139.
  • Handle: RePEc:eee:moneco:v:108:y:2019:i:c:p:135-139
    DOI: 10.1016/j.jmoneco.2019.09.004
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    References listed on IDEAS

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    1. Campbell, Jeffrey R. & Ferroni, Filippo & Fisher, Jonas D.M. & Melosi, Leonardo, 2019. "The limits of forward guidance," Journal of Monetary Economics, Elsevier, vol. 108(C), pages 118-134.
    2. Mark Gertler & Jordi Gali & Richard Clarida, 1999. "The Science of Monetary Policy: A New Keynesian Perspective," Journal of Economic Literature, American Economic Association, vol. 37(4), pages 1661-1707, December.
    3. Eric Swanson, 2016. "Measuring the Effects of Federal Reserve Forward Guidance and Asset Purchases on Financial Markets," 2016 Meeting Papers 1222, Society for Economic Dynamics.
    4. Alisdair McKay & Emi Nakamura & Jón Steinsson, 2016. "The Power of Forward Guidance Revisited," American Economic Review, American Economic Association, vol. 106(10), pages 3133-3158, October.
    5. Guerrieri, Luca & Iacoviello, Matteo, 2015. "OccBin: A toolkit for solving dynamic models with occasionally binding constraints easily," Journal of Monetary Economics, Elsevier, vol. 70(C), pages 22-38.
    6. Xavier Gabaix, 2020. "A Behavioral New Keynesian Model," American Economic Review, American Economic Association, vol. 110(8), pages 2271-2327, August.
    7. Haberis, Alex & Harrison, Richard & Waldron, Matthew, 2017. "Uncertain forward guidance," Bank of England working papers 654, Bank of England.
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