Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/129709
Authors: 
De Graeve, Ferre
Ilbas, Pelin
Wouters, Raf
Year of Publication: 
2014
Series/Report no.: 
Sveriges Riksbank Working Paper Series 292
Abstract: 
Forward guidance policies are often argued to stimulate economic activity by reducing nominal long term interest rates. We document why a lower nominal long rate is neither necessary nor sufficient for forward guidance to be successful. We determine the mechanisms behind widely varying long rate responses in existing empirical structural models. Imperfect information about the rationale for forward guidance can severely distort long rate effects and attenuate much of its expansive effect. These results suggest caution in interpreting event-studies of forward guidance.
Subjects: 
Forward guidance
long term interest rate
JEL: 
E43
E52
E58
Document Type: 
Working Paper

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