Can More Public Information Raise Uncertainty? The International Evidence on Forward Guidance

43 Pages Posted: 7 Oct 2019

See all articles by Michael Ehrmann

Michael Ehrmann

European Central Bank (ECB); Bank of Canada

Gaetano Gaballo

HEC Paris

Peter Hoffmann

European Central Bank (ECB) - Directorate General Research

Georg Strasser

European Central Bank (ECB) - Directorate General Research

Multiple version iconThere are 2 versions of this paper

Date Written: September 2019

Abstract

Central banks have used different types of forward guidance. This paper reports cross-country evidence showing that, in general, forward guidance mutes the response of government bond yields to macroeconomic news. However, calendar-based guidance with a short horizon counter-intuitively raises it. Using a stylized model where agents learn from market signals, it shows that the public release of more precise information about future rates lowers the informativeness of market signals and, as a consequence, may increase uncertainty and amplify the reaction of expectations to macroeconomic news.

Keywords: central bank communication, disagreement, forward guidance, heterogeneous beliefs, Macroeconomic news

JEL Classification: D83, E43, E52, E58

Suggested Citation

Ehrmann, Michael and Gaballo, Gaetano and Hoffmann, Peter and Strasser, Georg H., Can More Public Information Raise Uncertainty? The International Evidence on Forward Guidance (September 2019). CEPR Discussion Paper No. DP13977, Available at SSRN: https://ssrn.com/abstract=3464504

Michael Ehrmann (Contact Author)

European Central Bank (ECB) ( email )

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Bank of Canada ( email )

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Gaetano Gaballo

HEC Paris ( email )

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France

Peter Hoffmann

European Central Bank (ECB) - Directorate General Research ( email )

Kaiserstrasse 29
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Germany

Georg H. Strasser

European Central Bank (ECB) - Directorate General Research ( email )

Sonnemannstra├če 20
Frankfurt am Main, 60314
Germany
+496913441416 (Phone)

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