Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/310391 
Authors: 
Year of Publication: 
2024
Series/Report no.: 
Working Paper No. 11/2023
Publisher: 
Norges Bank, Oslo
Abstract: 
I prove that in any linearized general equilibrium model with existence and uniqueness of equilibrium, any present response to a future shock always becomes weaker the further away the shock is. There is no forward guidance puzzle in any sensible general equilibrium model if forward guidance is a one-time shock in the future. The difference from the literature arises from the underappreciated preceding peg of interest rate. The standard forward guidance exercise, of a drop in the interest rate in the future with the preceding peg of interest rate, is a series of explosive deviations disguised as a small, one-time shock in the future. I unpack the standard forward guidance exercise in different ways, and show that there is nothing puzzling about the forward guidance puzzle.
Persistent Identifier of the first edition: 
ISBN: 
978-82-8379-291-1
Creative Commons License: 
cc-by-nc-nd Logo
Document Type: 
Working Paper
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