scholarly journals Macroeconomic Effects of Federal Reserve Forward Guidance

2012 ◽  
Vol 2012 (1) ◽  
pp. 1-80 ◽  
Author(s):  
Jeffrey R. Campbell ◽  
Charles L. Evans ◽  
Jonas D. M. Fisher ◽  
Alejandro Justiniano
Keyword(s):  
Federal Reserve ◽  
Forward Guidance ◽  
Macroeconomic Effects

scholarly journals Macroeconomic Effects of Federal Reserve Forward Guidance

2012 ◽  
Author(s):  
Jeffrey R. Campbell ◽  
Charles L. Evans ◽  
Jonas D. M. Fisher ◽  
Alejandro Justiniano
Keyword(s):  
Federal Reserve ◽  
Forward Guidance ◽  
Macroeconomic Effects

scholarly journals Policy Language and Information Effects in the Early Days of Federal Reserve Forward Guidance

2020 ◽  
Vol 110 (9) ◽  
pp. 2899-2934 ◽  
Author(s):  
Kurt G. Lunsford
Keyword(s):  
Federal Reserve ◽  
Stock Prices ◽  
Gdp Growth ◽  
Open Market ◽  
Federal Funds ◽  
Federal Funds Rate ◽  
Information Effects ◽  
Forward Guidance ◽  
Policy Statements ◽  
Economic Outlook

I show that the nature of the Federal Open Market Committee’s (FOMC’s) forward guidance language shapes the private sector’s responses to monetary policy statements. From February 2000 to June 2003, the FOMC only gave forward guidance about economic outlook risks, and a decrease in the expected federal funds rate path caused stock prices to fall, GDP growth forecasts to fall, and the unemployment rate to rise. From August 2003 to May 2006, the FOMC added forward guidance about policy inclinations, and a decrease in the expected federal funds rate path had the opposite effects. These results suggest that forward guidance that emphasizes economic outlook risks causes stronger information effects than forward guidance that emphasizes policy inclinations. (JEL D83, E52, E58, E66)

scholarly journals The Dynamic Effects of Forward Guidance Shocks

2020 ◽  
Vol 102 (5) ◽  
pp. 946-965 ◽  
Author(s):  
Brent Bundick ◽  
A. Lee Smith
Keyword(s):  
Monetary Policy ◽  
Theoretical Model ◽  
Economic Activity ◽  
Futures Contracts ◽  
Dynamic Effects ◽  
Forward Guidance ◽  
Policy Shocks ◽  
Macroeconomic Effects ◽  
Future Policy ◽  
Macroeconomic Implications

We examine the macroeconomic effects of forward guidance shocks at the zero lower bound. Empirically, we identify forward guidance shocks using unexpected changes in futures contracts around monetary policy announcements. We then embed these policy shocks in a vector autoregression to trace out their macroeconomic implications. Forward guidance shocks that lower expected future policy rates lead to moderate increases in economic activity and inflation. After examining forward guidance shocks in the data, we show that a standard model of nominal price rigidity can reproduce our empirical findings. To estimate our theoretical model, we generate a model-implied futures curve that closely links our model with the data. Our results suggest no disconnect between the empirical effects of forward guidance shocks around policy announcements and the predictions from a standard theoretical model.

scholarly journals Perspectives From the Past for the Federal Reserve’s Monetary Policy and Communication

2018 ◽  
Vol 10 (1) ◽  
pp. 31
Author(s):  
Arto Kovanen
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Financial Crisis ◽  
Federal Reserve ◽  
Policy Decisions ◽  
Forward Guidance ◽  
Policy Communication ◽  
Communication Practices ◽  
Future Policy ◽  
Future Direction

In this paper we analyze the Federal Reserve’s policy and communication patterns during earlier tightening cycles to gain perspectives into the Federal Reserve’s post-financial crisis monetary policy decisions and communication practices. While each interest rate cycle is unique, as is evident in the post-financial crisis normalization episode, there are regularities that could help inform us about future policy directions. In the post-financial period, the Federal Reserve has placed a great deal of emphasis on policy communication, in particular on its forward guidance, to minimize ambiguity about the future direction of monetary policy. We examine forward guidance during the earlier interest rate cycles and identify some common elements in the Federal Reserve’s communication practices, which would be useful in interpreting the Federal Reserve’s policy actions. This leads us to conclude that it would not be uncharacteristic for the Federal Reserve to suspend its campaign of raising interest rate at this stage of the normalization process, even if inflation risk remains. This underscored the importance of judgment in policy decisions, in part due to uncertainty about the neutral rate of interest, which is a benchmark that the Federal Reserve frequently refers to. In addition, historical trends in economic variables reveal patterns that could assist in evaluating the Federal Reserve’s current and future policy decisions.

scholarly journals Forward Guidance during the Pandemic: Has It Changed the Public’s Expectations?

2020 ◽  
pp. 1-7
Author(s):  
Wesley Janson ◽  
Chengcheng Jia
Keyword(s):  
Federal Reserve ◽  
Gdp Growth ◽  
Federal Funds ◽  
Federal Funds Rate ◽  
The Public ◽  
Economic Fundamentals ◽  
Forward Guidance ◽  
The Difference ◽  
Future Policy

In responding to the COVID-19 crisis, the Federal Reserve has both lowered the federal funds rate and provided forward guidance. We study whether the forward guidance given with the April and June 2020 FOMC meetings altered the public’s expectations of future policy rates, GDP growth, and inflation. We find that forward guidance was effective in altering the public’s expectations about future policy rates if it was accompanied by an SEP but not expectations about economic fundamentals. We suggest that the difference might be explained by FOMC statements being interpretable in two different ways and the public not having a dominant view on which interpretation was intended.

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