Template-Type: ReDIF-Paper 1.0
Author-Name: Christopher S Sutherland
Author-X-Name-First: Christopher S
Author-X-Name-Last: Sutherland
Title: Forward guidance and expectation formation: A narrative approach
Abstract: How forward guidance influences expectations is not yet fully understood. To study this issue, I construct central bank data that includes forward guidance and its attributes, central bank projections, and quantitative easing, which I combine with survey data. I describe how, when, and where forward guidance has worked. I find that forecasters revise their interest rate forecasts in the intended direction by five basis points on average following a change in forward guidance. I provide country estimates for The Federal Reserve, European Central Bank, Bank of England, Bank of Canada, Reserve Bank of Australia, Reserve Bank of New Zealand, Sveriges Riksbank, and Norges Bank. I offer preliminary evidence that commitment-based forward guidance is exceedingly rare, but can strongly amplify forward guidance. Finally, I provide estimates of the extent to which this effect may be attributable to central bank information effect.
Length: 39 pages
Creation-Date: 2022-06
File-URL: https://www.bis.org/publ/work1024.pdf
File-Format: Application/pdf
File-Function: Full PDF document
File-URL: https://www.bis.org/publ/work1024.htm
File-Format: text/html
Number: 1024
Keywords: forward guidance, central bank communication, information effects, expectations, survey data
Classification-JEL: D83, D84, E37, E52, E58
Handle: RePEc:bis:biswps:1024