Brubakk, L., ter Ellen, S., Robstad, Ø. and Xu, H. (2022). The macroeconomic effects of forward communication Journal of International Money and Finance, 120.
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Affiliated author
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Publication year2022
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JournalJournal of International Money and Finance
This paper provides an empirical assessment of the power of forward guidance at different horizons, shedding new light on the strength of the “forward guidance puzzle”. Our identification strategy allows us to disentangle target and forward guidance shocks from central bank private information. We investigate to what extent the horizon of guidance matters for its macroeconomic effects, and find that as the communication horizon lengthens, its impact on output and inflation weakens. This runs contrary to the prediction from standard New Keynesian models that the power of forward guidance increases with its horizon.