Forward Guidance and Heterogeneous Beliefs
American Economic Journal: Macroeconomics
vol. 11,
no. 3, July 2019
(pp. 1-29)
Abstract
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.Citation
Andrade, Philippe, Gaetano Gaballo, Eric Mengus, and Benoît Mojon. 2019. "Forward Guidance and Heterogeneous Beliefs." American Economic Journal: Macroeconomics, 11 (3): 1-29. DOI: 10.1257/mac.20180141Additional Materials
JEL Classification
- D83 Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
- E12 General Aggregative Models: Keynes; Keynesian; Post-Keynesian
- E43 Interest Rates: Determination, Term Structure, and Effects
- E52 Monetary Policy
- E58 Central Banks and Their Policies
- E65 Studies of Particular Policy Episodes
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