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The Art of Central Banks Forward Guidance at the Zero Lower Bound

Author

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  • Hamza Bennani

    () (EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

Abstract

This paper proposes an alternative method to assess the usefulness of central banks' forward guidance since the start of the global financial crisis. Using the Wordscores methodology, I provide a quantitative analysis of the size of the expansionary monetary impulses, as expressed through the forward guidance of three central banks: the European Central Bank, the Federal Reserve and the Bank of England. The findings reveal that since 2009, central banks' communication delivers important insights to financial market participants on the persistence of their (un)conventional monetary measures, and in particular, on the future occurrence of an exit strategy through the so-called Odyssean forward guidance.

Suggested Citation

  • Hamza Bennani, 2018. "The Art of Central Banks Forward Guidance at the Zero Lower Bound," Post-Print hal-01549797, HAL.
  • Handle: RePEc:hal:journl:hal-01549797
    Note: View the original document on HAL open archive server: https://hal.archives-ouvertes.fr/hal-01549797
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    References listed on IDEAS

    as
    1. Gürkaynak, Refet S. & Levin, Andrew & Swanson, Eric T, 2006. "Does Inflation Targeting Anchor Long-Run Inflation Expectations? Evidence from Long-Term Bond Yields in the US, UK and Sweden," CEPR Discussion Papers 5808, C.E.P.R. Discussion Papers.
    2. repec:bla:ecinqu:v:55:y:2017:i:4:p:1593-1624 is not listed on IDEAS
    3. Anton Nakov, 2008. "Optimal and Simple Monetary Policy Rules with Zero Floor on the Nominal Interest Rate," International Journal of Central Banking, International Journal of Central Banking, vol. 4(2), pages 73-127, June.
    4. Carlo Rosa, 2009. "Forecasting the Direction of Policy Rate Changes: The Importance of ECB Words," Economic Notes, Banca Monte dei Paschi di Siena SpA, vol. 38(1-2), pages 39-66, February.
    5. Michael Ehrmann & Marcel Fratzscher, 2009. "Explaining Monetary Policy in Press Conferences," International Journal of Central Banking, International Journal of Central Banking, vol. 5(2), pages 42-84, June.
    6. John B. Carlson & Ben R. Craig & Patrick C. Higgins & William R. Melick, 2006. "FOMC communications and the predictability of near-term policy decisions," Economic Commentary, Federal Reserve Bank of Cleveland, issue Jun.
    7. David-Jan Jansen & Jakob de Haan, 2010. "An Assessment of the Consistency of ECB Communication using Wordscores," DNB Working Papers 259, Netherlands Central Bank, Research Department.
    8. Jeffrey R. Campbell & Charles L. Evans & Jonas D.M. Fisher & Alejandro Justiniano, 2012. "Macroeconomic Effects of Federal Reserve Forward Guidance," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 43(1 (Spring), pages 1-80.
    9. Gavin, William T. & Keen, Benjamin D. & Richter, Alexander & Throckmorton, Nathaniel, 2013. "The stimulative effect of forward guidance," Working Papers 2013-38, Federal Reserve Bank of St. Louis, revised 30 Apr 2014.
    10. Bjørn-Roger Wilhelmsen & Andrea Zaghini, 2011. "Monetary policy predictability in the euro area: an international comparison," Applied Economics, Taylor & Francis Journals, vol. 43(20), pages 2533-2544.
    11. Gauti B. Eggertsson & Michael Woodford, 2003. "The Zero Bound on Interest Rates and Optimal Monetary Policy," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 34(1), pages 139-235.
    12. Andrew Levin & David López-Salido & Edward Nelson & Yack Yun, 2010. "Limitations on the Effectiveness of Forward Guidance at the Zero Lower Bound," International Journal of Central Banking, International Journal of Central Banking, vol. 6(1), pages 143-189, March.
    13. repec:cup:apsrev:v:97:y:2003:i:02:p:311-331_00 is not listed on IDEAS
    14. Marie Musard-Gies, 2006. "Do European Central Bank'S Statements Steer Interest Rates In The Euro Zone?," Manchester School, University of Manchester, vol. 74(s1), pages 116-139, September.
    15. Andrew Filardo & Boris Hofmann, 2014. "Forward guidance at the zero lower bound," BIS Quarterly Review, Bank for International Settlements, March.
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    Cited by:

    1. David Bholat & Stephen Hans & Pedro Santos & Cheryl Schonhardt-Bailey, 2015. "Text mining for central banks," Handbooks, Centre for Central Banking Studies, Bank of England, edition 1, number 33, March.

    More about this item

    Keywords

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    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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