The power of forward guidance and the fiscal theory of the price level

Arbeitspapier

Standard New Keynesian models predict implausibly large and favorable responses of inflation and output to expansionary forward guidance on interest rates. We find that the introduction of permanent or recurring active fiscal policy dampens the response of output and inflation to forward guidance in the New Keynesian model. Moreover, the presence of regime-switching policy introduces expectation e ects that cause forward guidance to be less stimulative in our regime-switching model's active money, passive fiscal policy regime. Finally, the introduction of long-term debt a ects the magnitude of the stimulus resulting from forward guidance in models with active fiscal policy.

Object Details

• ISBN: 978-952-323-246-4
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Bank of Finland Research Discussion Papers ; No. 21/2018

Classification and Topics

• Classification: Wirtschaft ; Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy ; Expectations; Speculations ; Monetary Policy, Central Banking, and the Supply of Money and Credit: General ; Monetary Policy ; Central Banks and Their Policies ; Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): McClung, Nigel
• Event: Veröffentlichung
• (who): Bank of Finland
• (where): Helsinki
• (when): 2018

Further information

• Handle: http://hdl.handle.net/10419/212429
• Last update: 10.03.2025, 11:41 AM CET