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Forward Guidance as a Monetary Policy Rule

June 27, 2016
Mitsuru Katagiri*

Abstract

Many central banks implement forward guidance according to an implicit or explicit policy rule in practice, and thus it is expected to influence the economy by changing expectations formation of private agents. In this paper, I investigate the effects of forward guidance particularly via expectations formation by formulating forward guidance as a monetary policy rule in a non-linear new Keynesian model. A quantitative analysis using the U.S. and Japanese data implies that a rule-based forward guidance significantly mitigates a decline in inflation and output growth in a crisis period via changing expectations formation.

  • Research and Statistics Department, Bank of Japan
    E-mail : mitsuru.katagiri@boj.or.jp

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