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01160nam a2200133Ia 4500 |
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10.1257-mac.20170335 |
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220511s2019 CNT 000 0 und d |
| 020 |
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|a 19457707 (ISSN)
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| 245 |
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|a Optimal forward guidance
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| 260 |
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|b American Economic Association
|c 2019
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| 856 |
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|z View Fulltext in Publisher
|u https://doi.org/10.1257/mac.20170335
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|a Optimal forward guidance is the simple policy of keeping interest rates low for some optimally determined number of periods after the liquidity trap ends and moving to normal-times optimal policy thereafter. I solve for the optimal duration in closed form in a new Keynesian model and show that it is close to fully optimal Ramsey policy. The simple rule "announce a duration of half of the trap's duration times the disruption" is a good approximation, including in a medium-scale dynamic stochastic general equilibrium (DSGE) model. By anchoring expectations of Delphic agents (who mistake commitment for bad news), the simple rule is also often welfare-preferable to Odyssean commitment. © 2019 American Economic Association.
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| 700 |
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|a Bilbiie, F.O.
|e author
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| 773 |
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|t American Economic Journal: Macroeconomics
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