Unconventional Monetary Policy Surprises: Delphic or Odyssean?

Abstract

Central bank communication could be interpreted in two ways, either as central bank's commitment to a future action, known as Odyssean guidance, or its forecast of future economic conditions, known as Delphic guidance. The empirical literature has identified the Delphic and Odyssean components of forward guidance policies. I show that another unconventional policy tool, large-scale asset purchases, can also be empirically decomposed into Delphic and Odyssean components, and these two components have opposing impacts on macroeconomic expectations in the US along with other advanced and emerging market economies. Finally, I estimate the asset price responses to Delphic and Odyssean policies.

Keywords: Unconventional Monetary Policies, Delphic and Odyssean Policies, Expectations, Signalling

JEL Classification: E52, E44, E58