Publisher:
LUISS Guido Carli, Department of Economics and Business, Arcelli Centre for Monetary and Financial Studies, Rome
Abstract:
This paper investigates the effectiveness of forward guidance for the central banks of four countries: New Zealand, Norway, Sweden, and the United States. We test whether forward guidance improved market participants' ability to forecast future short-term and long-term rates. We find some evidence that forward guidance improved market participants' ability to forecast short-term rates over relatively short forecast horizons in New Zealand, Norway and Sweden, but not so for the United States. Most effects are small, often insignificant, and vary across benchmarks. In addition, forward guidance induces convergence of survey forecasts for New Zealand, but less so for the other countries, in particular the United States.