The Power of Forward Guidance in a Quantitative TANK Model
40 Pages Posted: 18 Mar 2020
Date Written: March 18, 2020
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: Suggested Citation