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Forward Guidance / Marcus Hagedorn, Jinfeng Luo, Iourii Manovskii, Kurt Mitman.
- Format:
- Book
- Author/Creator:
- Hagedorn, Marcus.
- Series:
- Working Paper Series (National Bureau of Economic Research) no. w24521.
- NBER working paper series no. w24521
- Language:
- English
- Physical Description:
- 1 online resource: illustrations (black and white);
- Place of Publication:
- Cambridge, Mass. National Bureau of Economic Research 2018.
- Summary:
- We assess the power of forward guidance--promises about future interest rates--as a monetary tool in a liquidity trap using a quantitative incomplete-markets model. Our results suggest the effects of forward guidance are negligible. A commitment to keep future nominal interest rates low for a few quarters--although macro indicators suggest otherwise--has only trivial effects on current output and employment. We explain theoretically why in complete markets models forward guidance is powerful--generating a "forward guidance puzzle"--and why this puzzle disappears in our model. We also clarify theoretically ambiguous conclusions from previous research about the effectiveness of forward guidance in incomplete and complete markets models.
- Notes:
- Print version record
- April 2018.
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