A central banker’s choice
Following the arguments of Cochrane (2011), we demonstrate that adopting an “active” interest rate rule also relies only on communications rather than actions; and we show that a central banker facing a finite horizon planning problem relies on the forward guidance puzzle.
Open Mouth Operations
Authors: Jeffrey R. Campbell, Jacob P. Weber
From: Federal reserve Bank of Chicago
Relaxing common knowledge assumption restores discounting
Angeletos and Lian revisit the new Keynesian model by embedding its building blocks into a class of “dynamic beauty contests”. They find that if within this framework the assumption of common knowledge is relaxed expectations of future outcomes become anchored, effectively leading to heavier discount of the future.
Forward Guidance without common knowledge
Authors: George-Marios Angeletos, Chen Lian
From: MIT
Is there a forward guidance puzzle?
Lilia Maliar argues that the forward guidance puzzle is observed only in versions of the new Keynesian model with suboptimal and empirically implausible monetary policy rules such as fixed prices or inflation accommodation. She also finds that forward guidance with the Taylor rule can have detrimental effects on output or lead to cycles even under empirically relevant parameterizations.
A Study of Forward Guidance Properties in New Keynesian Models
Authors: Lilia Maliar
From: Stanford University
