The Power of Forward Guidance in a Quantitative TANK Model

40 Pages Posted: 18 Mar 2020

See all articles by Rafael Gerke

Rafael Gerke

Deutsche Bundesbank

Sebastian Giesen

Deutsche Bundesbank

Alexander Scheer

Deutsche Bundesbank

Date Written: March 18, 2020

Abstract

We quantify the macroeconomic effects of interest rate forward guidance in an estimated medium-scale two-agent New Keynesian (TANK) model. In general, such models can dampen or amplify the power of forward guidance compared to a representative agent model. Our empirical estimates indicate a dampening, as there is sufficient countercyclical redistribution. An interaction with asset purchases gives rise to non-linear effects that depend on the horizon of forward guidance.

Keywords: Forward Guidance, Hand-to-mouth households, Redistribution, Bayesian Estimation, Asset purchase program

JEL Classification: E44, E52, E62

Suggested Citation

Gerke, Rafael and Giesen, Sebastian and Scheer, Alexander, The Power of Forward Guidance in a Quantitative TANK Model (March 18, 2020). Deutsche Bundesbank Discussion Paper No. 03/2020, Available at SSRN: https://ssrn.com/abstract=3556494

Rafael Gerke (Contact Author)

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Sebastian Giesen

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

Alexander Scheer

Deutsche Bundesbank ( email )

Wilhelm-Epstein-Str. 14
Frankfurt/Main, 60431
Germany

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