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Gauging the effectiveness of quantitative forward guidance: evidence from three inflation targeters

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  • Andersson, Magnus
  • Hofmann, Boris

Abstract

This paper conducts a comparative analysis of the performances of the forward guidance strategies adopted by the Reserve Bank of New Zealand, the Norges Bank and the Riksbank, with the aim to gauge whether forward guidance via publication of an own interest rate path enhances a central bank’s ability to steer market expectations. Two main results emerge. First, we find evidence that all three central banks have been highly predictable in their monetary policy decisions and that long-term inflation expectations have been well anchored in the three economies, irrespective of whether forward guidance involved publication of an own interest rate path or not. Second, for New Zealand, we find weak evidence that a publication of a path could potentially enhance a central bank’s leverage on the medium term structure of interest rates. JEL Classification: E40, E43, E52

Suggested Citation

  • Andersson, Magnus & Hofmann, Boris, 2009. "Gauging the effectiveness of quantitative forward guidance: evidence from three inflation targeters," Working Paper Series 1098, European Central Bank.
  • Handle: RePEc:ecb:ecbwps:20091098
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    Cited by:

    1. Eric Gaus, 2014. "Adaptive Learning, Heterogeneous Expectations and Forward Guidance," Working Papers 14-03, Ursinus College, Department of Economics.
    2. Neuenkirch, Matthias, 2012. "Managing financial market expectations: The role of central bank transparency and central bank communication," European Journal of Political Economy, Elsevier, vol. 28(1), pages 1-13.
    3. Bernd Hayo & Matthias Neuenkirch, 2016. "Central Banks' Predictability: An Assessment by Financial Market Participants," Research Papers in Economics 2016-02, University of Trier, Department of Economics.
    4. Stenfors, Alexis, 2014. "LIBOR deception and central bank forward (mis-)guidance: Evidence from Norway during 2007–2011," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 32(C), pages 452-472.
    5. Lars E.O. Svensson, 2014. "Forward Guidance," NBER Working Papers 20796, National Bureau of Economic Research, Inc.
    6. Moessner, Richhild, 2015. "Reactions of US government bond yields to explicit FOMC forward guidance," The North American Journal of Economics and Finance, Elsevier, vol. 33(C), pages 217-233.
    7. Paul Hubert & Fabien Labondance, 2016. "The Effect of ECB Forward Guidance on Policy Expectations," Working Papers hal-01394821, HAL.
    8. Alexis Stenfors, 2014. "The Swedish Financial System," FESSUD studies fstudy13, Financialisation, Economy, Society & Sustainable Development (FESSUD) Project.
    9. Man-Keung Tang & Xiangrong Yu, 2011. "Communication of Central Bank Thinking and Inflation Dynamics," IMF Working Papers 11/209, International Monetary Fund.
    10. Neuenkirch, Matthias, 2013. "Central bank transparency and financial market expectations: The case of emerging markets," Economic Systems, Elsevier, vol. 37(4), pages 598-609.
    11. Lars E.O. Svensson, 2015. "Day One Keynote Address: Forward Guidance," International Journal of Central Banking, International Journal of Central Banking, vol. 11(4), pages 19-64, September.
    12. repec:spr:joevec:v:27:y:2017:i:5:d:10.1007_s00191-017-0522-8 is not listed on IDEAS
    13. Moessner, Richhild, 2013. "Effects of explicit FOMC policy rate guidance on interest rate expectations," Economics Letters, Elsevier, vol. 121(2), pages 170-173.
    14. Moessner, Richhild & Allen, William A., 2013. "Central bank swap line effectiveness during the euro area sovereign debt crisis," Journal of International Money and Finance, Elsevier, vol. 35(C), pages 167-178.
    15. Karyne B. Charbonneau & Lori Rennison, 2015. "Forward Guidance at the Effective Lower Bound: International Experience," Discussion Papers 15-15, Bank of Canada.

    More about this item

    Keywords

    central bank communication; forward guidance; monetary policy; term structure of interest rates; transparency;

    JEL classification:

    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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