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Central Bank Forward Guidance and the Signal Value of Market Prices

Author(s): Morris, Stephen; Shin, Hyun Song

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Abstract: Central banks use forward guidance to steer market expectations of future monetary policy moves. At the same time, they rely on market prices to gauge the likely path of the economy and the appropriate stance of monetary policy. This two-way flow between market prices and forward guidance can create a circularity. Market signals may be rendered less informative when the central bank heeds market signals in formulating forward guidance, as those market signals reflect the diminished weight placed by market participants on their private signals.
Publication Date: May-2018
Citation: Morris, Stephen, Shin, Hyun Song. (2018). Central Bank Forward Guidance and the Signal Value of Market Prices. AEA PAPERS AND PROCEEDINGS, 108 (572 - 577. doi:10.1257/pandp.20181081
DOI: doi:10.1257/pandp.20181081
ISSN: 2574-0768
EISSN: 2574-0776
Pages: 572 - 577
Type of Material: Journal Article
Journal/Proceeding Title: AEA PAPERS AND PROCEEDINGS
Version: Final published version. Article is made available in OAR by the publisher's permission or policy.

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