The dynamic effects of forward guidance shocks
We examine the macroeconomic effects of forward guidance shocks at the zero lower bound. Empirically, we identify forward guidance shocks using a two-step procedure, which embeds high-frequency futures contracts in a structural vector autoregression. An exogenous extension of the zero lower bound duration increases economic activity and prices. We show that a standard model of nominal price rigidity largely replicates these empirical results. To calibrate our theoretical model, we generate a model-implied futures curve which allows us to closely link our model with the data. Our results suggest no disconnect between the empirical effects of forward guidance shocks and the predictions from a standard model of monetary policy.
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