Forward guidance and expectation formation: A narrative approach

Sutherland, Christopher

doi:10.1002/jae.2948

Cited by 5 publications

(5 citation statements)

References 95 publications

(266 reference statements)

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“…We call this a 'sequencing' channel to distinguish it from the signalling channel, but this aligns with the 'policy signalling' effects discussed in the literature, for example,Bhattarai et al (2015) andSutherland (2023).Ó 2024 The Authors. Economic Record published by John Wiley & Sons Australia, Ltd on behalf of Economic Society of Australia.…”

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confidence: 80%

“…2 The consensus finding is that forward guidance and LSAPs have significant announcement effects and work through both the expected forward path and term premium components of the yield curve. However, there are few cases of alternative monetary policy commitments (Potter & Smets, 2019;Sutherland, 2023), with only two modern uses of yield curve control and one instance of an explicit, unconditional commitment to forward guidance being fulfilled. This makes empirical evaluation difficult.…”

Section: Literature Reviewmentioning

confidence: 99%

“…This choice may influence the effectiveness of the tools in reducing bond yields. However, there are few real world examples of unconditional commitments to forward guidance or yield curve control (Potter & Smets, 2019; Sutherland, 2023).…”

Section: Introductionmentioning

confidence: 99%

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Alternative Monetary Policy Commitments and the Yield Curve*

Gai,

Haworth

2024

Economic Record

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We present a simple model to characterise central bank forward guidance, large‐scale asset purchases and yield curve control. Endogenous yield curve reactions to policy shocks are a key determinant of monetary conditions and can support or offset policy intentions. Alternative monetary policy tools allow the central bank to signal central bank private information to investors when the policy rate is at the effective lower bound, shaping yield curve reactions. Commitments to these tools offer policy certainty but can become time‐inconsistent if the economy recovers sooner than expected. If commitments become time‐inconsistent, endogenous yield curve tightening can offset excess stimulus. The strength of this offset, and the optimality of monetary conditions, improves with the precision of investor inferences of central bank private information.

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confidence: 80%

Section: Literature Reviewmentioning

confidence: 99%

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Alternative Monetary Policy Commitments and the Yield Curve*

Gai,

Haworth

2024

Economic Record

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“…Expenditure" is total government expenditure as a percent of GDP. "Forward Guidance" is a dummy variable that equals one whenever the central bank of a country uses forward guidance in a given year (Sutherland, 2022). "Gov.…”

Section: Discussionmentioning

confidence: 99%

Bank Regulation and Sovereign Risk: A Paradox

Afonso

Teixeira²

2023

SSRN Journal

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“…Bongard et al (2021) find that both FOMC forward guidance and SEP interest rate projections influence private sector expectations. Sutherland (2021) collects data on forward guidance and macroeconomic projections from eight inflation-targeting central banks from 1990 to 2020. Private forecasters revise their interest rate forecasts by about five basis points following a change in forward guidance, but not in response to revisions to central bank macroeconomic projections.…”

Section: Effects On Private Sector Expectationsmentioning

confidence: 99%

Central bank forecasting: A survey

Binder

Sekkel

2023

Journal of Economic Surveys

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Central banks' forecasts are important monetary policy inputs and tools for central bank communication. We survey the literature on forecasting at the Federal Reserve, European Central Bank, Bank of England, and Bank of Canada, focusing especially on recent developments. After describing these central banks' forecasting frameworks, we discuss the literature on central bank forecast evaluation and new tests of unbiasedness and efficiency. We also discuss evidence of central banks' informational advantage over private sector forecasters, which appears to have weakened over time, and how central bank forecasts may affect private sector expectations even in the absence of an informational advantage. We discuss how the Great Recession led central banks to evaluate their forecasting frameworks, how the Covid‐19 pandemic has further challenged central bank forecasting, and directions for future research.

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Forward guidance and expectation formation: A narrative approach

Abstract: Riksbank. The views expressed in this paper are solely those of the author and may differ from official Bank of Canada views. No responsibility for them should be attributed to the Bank of Canada.

Cited by 5 publications

References 95 publications

Alternative Monetary Policy Commitments and the Yield Curve*

Alternative Monetary Policy Commitments and the Yield Curve*

Bank Regulation and Sovereign Risk: A Paradox

Central bank forecasting: A survey

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