Working Paper: CEPR ID: DP13977
Authors: Michael Ehrmann; Gaetano Gaballo; Peter Hoffmann; Georg Strasser
Abstract: Central banks have used different types of forward guidance. This paper reports cross-country evidence showing that, in general, forward guidance mutes the response of government bond yields to macroeconomic news. However, calendar-based guidance with a short horizon counter-intuitively raises it. Using a stylized model where agents learn from market signals, it shows that the public release of more precise information about future rates lowers the informativeness of market signals and, as a consequence, may increase uncertainty and amplify the reaction of expectations to macroeconomic news.
Keywords: Central Bank Communication; Heterogeneous Beliefs; Forward Guidance; Disagreement; Macroeconomic News
JEL Codes: D83; E43; E52; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Forward Guidance (F17) | Bond Yields (E43) |
| Long-Horizon Time-Contingent Forward Guidance (E43) | Bond Yields (E43) |
| Short-Horizon Time-Contingent Forward Guidance (E43) | Bond Yields (E43) |
| State-Contingent Forward Guidance (E60) | Bond Yields (E43) |
| Long-Horizon Time-Contingent Forward Guidance (E43) | Forecaster Disagreement (G17) |
| Open-Ended Forward Guidance (E60) | Forecaster Disagreement (G17) |
| Short-Horizon Time-Contingent Forward Guidance (E43) | Forecaster Disagreement (G17) |