Uncertainty matters for forward guidance success – BoE paper
Authors show introducing uncertainty generates significantly different macroeconomic effects
Two sources of uncertainty may throw off the results of papers attempting to study the results of central banks’ forward guidance on interest rates, according to a staff working paper published by the Bank of England (BoE) on March 31.
Alex Haberis, Richard Harrison and Matt Waldron introduce uncertainty caused by: the vagueness of communications; and the risk the policy may prove time-inconsistent. They model forward guidance as a commitment to deviate from standard policy behaviour, and
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