How Effective is Central Bank Forward Guidance?
40 Pages Posted: 9 Nov 2015
Date Written: 2012
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 participantsâ€™ ability to forecast future short-term and long-term rates. We find that forward guidance improved market participantsâ€™ ability to forecast short-term rates over relatively short forecast horizons, but only for Norway and Sweden. Importantly, there is no evidence that forward guidance has increased the efficacy of monetary policy for New Zealand, the country with the longest history of forward guidance.
Keywords: Monetary policy, Banks and banking, Central
Suggested Citation: Suggested Citation