Forward guidance and heterogeneous beliefs
Central banks' announcements that rates are expected to remain low could signal either a weak macroeconomic outlook, which would slow expenditures, or a more accommodative stance, which may stimulate economic activity. We use the Survey of Professional Forecasters to show that, when the Fed gav...
| Main Authors: | , , , |
|---|---|
| Format: | Article |
| Language: | English |
| Published: |
American Economic Association
2019
|
| Online Access: | View Fulltext in Publisher |
| Summary: | Central banks' announcements that rates are expected to remain low could signal either a weak macroeconomic outlook, which would slow expenditures, or a more accommodative stance, which may stimulate economic activity. We use the Survey of Professional Forecasters to show that, when the Fed gave guidance between 2011:III and 2012:IV, these two interpretations coexisted despite a consensus on low expected rates. We rationalize these facts in a New-Keynesian model where heterogeneous beliefs introduce a trade-off in forward guidance policy: leveraging on the optimism of those who believe in monetary easing comes at the cost of inducing excess pessimism in non-believers. © 2019 American Economic Association. |
|---|---|
| ISBN: | 19457707 (ISSN) |
| DOI: | 10.1257/mac.20180141 |