Forward guidance in the UK

Spencer Dale, James Talbot 13 September 2013

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At its meeting on 1 August 2013, the Monetary Policy Committee (MPC) agreed to provide state-contingent forward guidance concerning the future conduct of monetary policy. The aim was to provide more information to help financial markets, households and businesses understand the conditions under which the current stance of monetary policy would be maintained.

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Topics:  Monetary policy

Tags:  monetary policy, Central Banks, Bank of England, forward guidance

“Mensch tracht, und Gott lacht” – what’s the best guidance on monetary policy?

David Miles 22 October 2014

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“Mensch tracht, und Gott lacht” is a Yiddish proverb – men plan and God laughs. Woody Allen puts the same thought this way: “If you want to make God laugh tell him about your plans”. Some people might see these words as a fitting epitaph for forward guidance on monetary policy. The Bank of England has certainly faced a good deal of criticism for the guidance that it has recently been giving, as has the Federal Reserve in the US.

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Topics:  Monetary policy

Tags:  forward guidance, unconventional monetary policy, monetary policy, Central Banks, central bank communication, interest rates, uncertainty

To exit the Great Recession, central banks must adapt their policies and models

Marcus Miller, Lei Zhang 10 September 2014

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“Practical men…are usually the slaves…[of] some academic scribbler of a few years back” – John Maynard Keynes.

For monetary policy to be most effective, Michael Woodford emphasised the crucial importance of managing expectations. For this purpose, he advocated that central banks adopt explicit rules for setting interest rates to check inflation and recession, and went on to note that:

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Topics:  Global crisis Macroeconomic policy Monetary policy

Tags:  Taylor rule, forward guidance, great moderation, global crisis, Great Recession, quantitative easing, DSGE models, expectations, tapering, US, UK, Europe, eurozone, ECB, Bank of England, central banking, IMF, unconventional monetary policy

Publish or be damned – or why central banks need to say more about the path of their policy rates

Richard Barwell, Jagjit Chadha 31 August 2014

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The central banking community has made significant steps to improve its communication strategy since the days of myth and mystique criticised by Alan Blinder in 1998:

“Greater openness is not a popular case in central banking circles, where mystery is sometimes argued to be essential to effective monetary policy…[but] a more open central bank, by contrast, naturally conditions expectations by providing the markets with information about its own view of the fundamental forces guiding monetary policy.” 

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Topics:  Monetary policy

Tags:  Bank of England, forward guidance, unconventional monetary policy

The impact of unconventional monetary policy on perceptions of tail risk

Masazumi Hattori, Andreas Schrimpf, Vladyslav Sushko 17 November 2013

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A common, but hitherto unproven, notion is that central banks have effectively curbed perceptions of tail risks in financial markets by means of their unconventional policies.1 Such an effect is distinct from the well-documented compression of long-term yields (see Woodford 2012 for a comprehensive discussion). A reduction in tail risk perceptions will have an immediate effect on the pricing of risky assets, such as equities, and may have provided extra support for risk-taking behaviour – which was one of the aims of unconventional policies.

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Topics:  Financial markets Monetary policy

Tags:  tail risk, unconventional monetary policy, forward guidance, risk premia, asset purchases

Forward Guidance: A new Vox eBook

Wouter den Haan 23 October 2013

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Forward guidance is the provision of information by central banks about the future conduct of monetary policy and in particular about the central bank's policy interest rate. Forward guidance is aimed at influencing the public's expectations. This goal is not new. It has long been understood that managing expectations is an important part of monetary policy.

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Topics:  Monetary policy

Tags:  forward guidance

Forward policy guidance at the Federal Reserve

John C. Williams 16 October 2013

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In response to the financial crisis, the Federal Open Market Committee (FOMC) lowered the target federal funds rate to essentially zero in December 2008, where it has remained. The economy, however, was still reeling, and it wasn’t possible to create additional monetary stimulus by cutting the federal funds rate further—owing to the inability of nominal interest rates to fall much below that point.

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Topics:  Monetary policy

Tags:  Federal Reserve, forward guidance

Unconventional monetary policies revisited (Part II)

Biagio Bossone 05 October 2013

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Unconventional monetary policies: From quantitative easing to debt monetisation

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Topics:  Macroeconomic policy Monetary policy

Tags:  monetary policy, quantitative easing, forward guidance, helicopter money, central-bank independence

Forward guidance and the ECB

Peter Praet 06 August 2013

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The Introductory Statement to the Press Conference following the ECB’s Governing Council meeting of 4 July contained the following two sentences:

The Governing Council expects the key ECB interest rates to remain at present or lower levels for an extended period of time. This expectation is based on the overall subdued outlook for inflation extending into the medium term, given the broad-based weakness in the real economy and subdued monetary dynamics.

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Topics:  Monetary policy

Tags:  monetary policy, forward guidance, ECB policy

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