Forward guidance ‘escape clause' increases effectiveness, says Colombian paper
Forward guidance works better with a threshold at which it can be changed, paper claims
An ‘escape clause' for forward guidance – that is, a threshold at which a central bank deviates from its promised policy rate – is welfare improving as it allows monetary authorities "avoid cases in which the cost of reduced flexibility is too high", according to a new paper from the Colombian central bank.
The paper: Forward guidance with an escape clause: when half a promise is better than a full one, by Maria Lucia Florez-Jimenez and Julian A. Parra-Polania, describes the threshold as another
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