The Power of Forward Guidance Revisited

@article{McKay2015ThePO,
  title={The Power of Forward Guidance Revisited},
  author={Alisdair McKay and Emi Nakamura and J{\'o}n Bjarni Steinsson},
  journal={ERN: Monetary Policy (Topic)},
  year={2015}
}
In recent years, central banks have increasingly turned to “forward guidance” as a central tool of monetary policy, especially as interest rates around the world have hit the zero lower bound. Standard monetary models imply that far future forward guidance is extremely powerful: promises about far future interest rates have huge effects on current economic outcomes, and these effects grow with the horizon of the forward guidance. We show that the power of forward guidance is highly sensitive to… 

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