Forward Guidance and Heterogeneous Beliefs

Philippe Andrade; Gaetano Gaballo; Eric Mengus; Benoît Mojon

doi:10.1257/mac.20180141

journal article Jul 01, 2019

Forward Guidance and Heterogeneous Beliefs

Philippe Andrade Gaetano Gaballo Eric Mengus Benoît Mojon

American Economic Journal: Macroeconomics Vol. 11 No. 3 pp. 1-29 · American Economic Association

View at Publisher Save 10.1257/mac.20180141

Abstract

Central banks’ announcements that rates are expected to remain low could signal either a weak macroeconomic outlook, which would slow expenditures, or a more accommodative stance, which may stimulate economic activity. We use the Survey of Professional Forecasters to show that, when the Fed gave guidance between 2011:III and 2012:IV, these two interpretations coexisted despite a consensus on low expected rates. We rationalize these facts in a New-Keynesian model where heterogeneous beliefs introduce a trade-off in forward guidance policy: leveraging on the optimism of those who believe in monetary easing comes at the cost of inducing excess pessimism in non-believers. (JEL D83, E12, E43, E52, E58, E65)

Topics

No keywords indexed for this article. Browse by subject →

References

38

[1]

10.1016/j.jmoneco.2005.11.003

[2]

10.1086/657923

[3]

10.1016/j.jmoneco.2013.08.005

[4]

10.1016/j.jmoneco.2016.08.007

[5]

10.1257/aer.20161996

[6]

10.1257/aer.20110865

[7]

10.1257/pol.20130292

[8]

Measuring Economic Policy Uncertainty*

Scott R. Baker, Nicholas Bloom, Steven J. Davis

The Quarterly Journal of Economics 10.1093/qje/qjw024

[9]

10.1016/j.jet.2018.10.007

[10]

10.1016/j.jet.2007.07.008

[11]

10.1016/j.jmoneco.2012.01.002

[12]

Staggered prices in a utility-maximizing framework

Guillermo A. Calvo

Journal of Monetary Economics 10.1016/0304-3932(83)90060-0

[13]

Macroeconomic Effects of Federal Reserve Forward Guidance

Jeffrey R. Campbell, Charles L. Evans, Jonas D. M. Fisher et al.

Brookings Papers on Economic Activity 10.1353/eca.2012.0004

[14]

10.1086/690242

[15]

10.1016/j.jmoneco.2014.04.013

[16]

10.1086/665662

[17]

Information Rigidity and the Expectations Formation Process: A Simple Framework and New Facts

Olivier Coibion, Yuriy Gorodnichenko

American Economic Review 10.1257/aer.20110306

[18]

10.1111/j.1538-4616.2010.00328.x

[19]

10.1353/eca.2003.0010

[20]

Debt, Deleveraging, and the Liquidity Trap: A Fisher-Minsky-Koo Approach*

Gauti B. Eggertsson, Paul Krugman

The Quarterly Journal of Economics 10.1093/qje/qjs023

[21]

10.1257/aer.91.5.1594

[22]

Engen Eric M Federal Reserve Board Finance and Economics Discussion Series (2015)

[23]

10.1257/mac.20130337

[24]

10.1257/aer.20170110

[25]

Gürkaynak Refet S International Journal of Central Banking (2005)

[26]

10.1353/mcb.2005.0053

[27]

10.1257/aer.20131193

[28]

Kiley Michael T Federal Reserve Board Finance and Economics Discussion Series (2014)

[29]

It's Baaack: Japan's Slump and the Return of the Liquidity Trap

Paul R. Krugman, Kathryn M. Dominquez, Kenneth Rogoff

Brookings Papers on Economic Activity 10.2307/2534694

[30]

10.1162/003355302320935034

[31]

10.1257/aer.20150063

[32]

Melosi Leonardo Review of Economic Studies (2017)

[33]

10.1093/restud/rdu016

[34]

10.1257/000282806777212297

[35]

High-Frequency Identification of Monetary Non-Neutrality: The Information Effect*

Emi Nakamura, Jón Steinsson

The Quarterly Journal of Economics 10.1093/qje/qjy004

[36]

Nakov Anton International Journal of Central Banking (2008)

[37]

10.1257/aer.90.3.429

[38]

Measuring the Effect of the Zero Lower Bound on Medium- and Longer-Term Interest Rates

Eric T. Swanson, John C. Williams

American Economic Review 10.1257/aer.104.10.3154

Metrics

48

Citations

38

References

Details

Published: Jul 01, 2019
Vol/Issue: 11(3)
Pages: 1-29

Authors

P

Philippe Andrade

Federal Reserve Bank of Boston, 600 Atlantic Avenue, Boston MA 02210 (email: )

G

Gaetano Gaballo

Monetary Policy Division, Banque de France, 31 Rue Croix des Petits Champs, 75001, Paris & Paris School of Economics, 48 Boulevard Jourdan, 75014 Paris & Centre for Economic Policy and Research, 33 Great Sutton Street, EC1V 0DX, London (email: )

E

Eric Mengus

Economics and Decision Sciences Department, HEC Paris, 1 rue de la Libération, 78350 Jouy-en-Josas, France (email: )

B

Benoît Mojon

Monetary and Economic Department, Bank for International Settlements, Centralbahnplatz 2, 4051 Basel (email: )

Cite This Article

Philippe Andrade, Gaetano Gaballo, Eric Mengus, et al. (2019). Forward Guidance and Heterogeneous Beliefs. American Economic Journal: Macroeconomics, 11(3), 1-29. https://doi.org/10.1257/mac.20180141

Forward Guidance and Heterogeneous Beliefs

You May Also Like