Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/284006 
Year of Publication: 
2023
Series/Report no.: 
Working Paper No. 2023-16
Publisher: 
Federal Reserve Bank of Atlanta, Atlanta, GA
Abstract: 
Forward guidance provides monetary policy communication for an economy at the effective lower bound (ELB). In this paper, we consider both calendar- and outcome-based forward guidance about the timing of liftoff. We develop a novel macro-finance shadow rate term structure model by introducing unspanned macro factors and an outcome-based liftoff condition. We estimate the model using the maximum likelihood method with extended Kalman filter. Based on the estimation results, we show that outcome-based forward guidance is indeed effective and has significant monetary-easing effects on the real economy in both ELB periods of the global financial crisis (GFC) and the COVID-19 pandemic. In particular, we find that the overall impact on the unemployment rate is about 0.8 percent during both the GFC and the pandemic, but outcome-based forward guidance contributes more in the former than in the latter ELB period (about 0.30 percent versus 0.15 percent).
Subjects: 
forward guidance
effective lower bound (ELB)
liftoff
term structure
shadow rate
macro finance
unspanned macro factors
JEL: 
E43
E44
E52
E58
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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