Title: Forward guidance as a monetary policy rule
Authors: Mitsuru Katagiri - Hosei University (Japan)
Takeki Sunakawa - Hitotsubashi University (Japan) [presenting]
Abstract: Many central banks implement forward guidance as a state-contingent policy rather than an exogenous policy action in practice. The effects of forward guidance are investigated by formulating it as a systematic part of the monetary policy rule in a non-linear new Keynesian model. It is shown that rule-based forward guidance can significantly mitigate adverse effects on inflation by changing the way of forming expectations about what the central bank can do in a crisis. A quantitative analysis shows that rule-based forward guidance provides new insight about controversial issues including the forward guidance puzzle and the missing deflation puzzle during the Great Recession.