Forward guidance matters: Disentangling monetary policy shocks

Arbeitspapier

Central banks have usually employed short-term rates as the main instrument of monetary policy. In the last decades, however, forward guidance has also become a central tool for monetary policy. In an innovative way this paper combines two sources of extraneous information - high frequency surprises and narrative evidence - with sign restrictions in a structural vector autoregressive (VAR) model to fully disentangle the effects of forward guidance shocks from the effects of conventional monetary policy shocks. Results show that conventional monetary policy has the expected effects even in a recent US sample, in contrast with the evidence reported by Barakchian and Crowe (2013) and Ramey (2016), and that forward guidance is an effective policy tool. In fact, it is at least as strong as conventional monetary policy

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Working Paper ; No. 912

Classification and Topics

• Classification: Wirtschaft ; Prices, Business Fluctuations, and Cycles: General (includes Measurement and Data) ; Business Fluctuations; Cycles ; Interest Rates: Determination, Term Structure, and Effects ; Monetary Policy ; Central Banks and Their Policies ; Bayesian Analysis: General ; Econometric Modeling: General
• Subject: Forward Guidance ; Monetary Policy ; Narrative Sign Restrictions ; High-frequency identification

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Ferreira, Leonardo Nogueira
• Event: Veröffentlichung
• (who): Queen Mary University of London, School of Economics and Finance
• (where): London
• (when): 2020

Further information

• Handle: http://hdl.handle.net/10419/247181
• Last update: 10.03.2025, 11:44 AM CET