A0211
Title: Forward guidance as a monetary policy rule
Authors: Takeki Sunakawa - Hitotsubashi University (Japan) [presenting]
Mitsuru Katagiri - Hosei University (Japan)
Abstract: Many central banks implement forward guidance as a state-contingent policy rather than an exogenous policy action in practice. This paper investigates the effects of forward guidance by formulating it as a systematic part of the monetary policy rule in a non-linear new Keynesian model, and shows that rule-based forward guidance can significantly mitigate adverse effects on inflation by changing the way of forming expectations about what the central bank can do in a crisis. A quantitative analysis shows that rule-based forward guidance provides new insights about controversial issues including the forward guidance puzzle and the missing deflation puzzle during the Great Recession.
