How Effective is Central Bank Forward Guidance?

20 Pages Posted: 28 Mar 2016 Last revised: 24 Jul 2019

See all articles by Clemens J.M. Kool

Clemens J.M. Kool

Utrecht University - School of Economics

Daniel L. Thornton

Federal Reserve Bank of St. Louis - Research Division

Multiple version iconThere are 3 versions of this paper

Date Written: 2015

Abstract

This paper investigates the effectiveness of forward guidance for the central banks of New Zealand, Norway, Sweden, and the United States. The authors test whether forward guidance improved market participants’ ability to forecast future short-term and long-term rates relative to several benchmarks. They find some evidence that forward guidance improved market participants’ ability to forecast short-term rates over relatively short forecast horizons for New Zealand, Norway, and Sweden but not the United States. However, the effects are typically small and frequently not statistically significant. Moreover, in no case are the results uniform across the benchmarks used. In addition, the authors find evidence of convergence of survey forecasters for New Zealand but less so for the other countries and no evidence of convergence for the United States.

JEL Classification: E43, E47, E52

Suggested Citation

Kool, Clemens J.M. and Thornton, Daniel L., How Effective is Central Bank Forward Guidance? (2015). Review, Vol. 97, Issue 4, pp. 303-22, 2015. Available at SSRN: https://ssrn.com/abstract=2754968 or http://dx.doi.org/10.20955/r.2015.303-22

Clemens J.M. Kool (Contact Author)

Utrecht University - School of Economics ( email )

Kriekenpitplein 21-22
Adam Smith Building
Utrecht, 3584 EC
Netherlands

Daniel L. Thornton

Federal Reserve Bank of St. Louis - Research Division ( email )

411 Locust St
Saint Louis, MO 63011
United States
314-444-8582 (Phone)
314-444-8731 (Fax)

HOME PAGE: http://research.stlouisfed.org/econ/thornton/

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