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Forward Guidance Under the Cost Channel
A common finding in the literature is that forward guidance cannot be credible under discretionary policy as long as the zero lower bound is an one-off event. However, this is not the case when recurring episodes of zero interest rates are possible. In this paper, we contribute to this new result...
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| Veröffentlicht in: | MAGKS - Joint Discussion Paper Series in Economics (Band 04-2020) |
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| 1. Verfasser: | |
| Format: | Artikel |
| Sprache: | Englisch |
| Veröffentlicht: |
Philipps-Universität Marburg
2020
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| Schlagworte: | |
| Online Zugang: | PDF-Volltext |
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| Zusammenfassung: | A common finding in the literature is that forward guidance cannot be credible
under discretionary policy as long as the zero lower bound is an one-off
event. However, this is not the case when recurring episodes of zero interest
rates are possible. In this paper, we contribute to this new result and assess
the sustainability of forward guidance under the cost channel. We find that
forward guidance can be sustainable under the cost channel. However, we
show that it is less credible compared to a standard New Keynesian model.
Our results show that this finding also depends on the strength of the cost
channel. Furthermore, provide evidence that ignoring the presence of a cost
channel can be costly in terms of steady-state consumption. |
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| Umfang: | 40 Seiten |
| ISSN: | 1867-3678 |
| DOI: | 10.17192/es2024.0631 |