Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/208298
Authors: 
Ehrmann, Michael
Gaballo, Gaetano
Hoffmann, Peter
Strasser, Georg
Year of Publication: 
2019
Series/Report no.: 
ECB Working Paper No. 2263
Abstract: 
Central banks have used different types of forward guidance, where the forward guidance horizon is related to a state contingency, a calendar date or left open-ended. This paper reports cross-country evidence on the impact of these different types of forward guidance on the sensitivity of bond yields to macroeconomic news, and on forecaster disagreement about the future path of interest rates. We show that forward guidance mutes the response to macroeconomic news in general, but that calendar-based forward guidance with a short horizon counterintuitively raises it. Using a model where agents learn from market signals, we show that the release of more precise public information about future rates lowers the informativeness of market signals and, as a consequence, may increase uncertainty and amplify the reaction of expectations to macroeconomic news. However, when the increase in precision of public information is sufficiently large, uncertainty is unambiguously reduced.
Subjects: 
central bank communication
heterogeneous beliefs
forward guidance
disagreement
macroeconomic news
JEL: 
D83
E43
E52
E58
Persistent Identifier of the first edition: 
ISBN: 
978-92-899-3525-8
Document Type: 
Working Paper

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