Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/93615 
Year of Publication: 
2013
Series/Report no.: 
Staff Report No. 652
Publisher: 
Federal Reserve Bank of New York, New York, NY
Abstract: 
In the past few years, the Federal Open Market Committee (FOMC) has been using forward guidance about the federal funds rate in a more explicit way than ever before. This paper explores the market reaction to the forward guidance, with particular focus on the use of calendar dates and economic thresholds in the FOMC statement. The results show that market participants interpreted the FOMC's policy guidance as conveying important information about the Committee's policy reaction function. In particular, market participants came to expect the FOMC to wait for lower levels of unemployment for a given level of inflation before beginning to raise the target federal funds rate, thereby shifting to a more accommodative policy approach aimed at supporting the economic recovery.
Subjects: 
monetary policy
forward guidance
JEL: 
E52
E58
Document Type: 
Working Paper

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