Browsing by Subject "Forward guidance"

Now showing 1 - 3 of 3

Open Access
Essays on forward guidance
(2014) Akkaya, Yıldız
This dissertation consists of three essays on forward guidance, central bank verbal guidance on future policy rates, and shows how economies respond to it both theoretically and empirically. In the first essay the effects of forward guidance on real economy through interest rate uncertainty is studied as explicit numerical guidance lowers the uncertainty around future interest rates. To analyze the effects of such a policy a New Keynesian model framework incorporating interest rate uncertainty is developed. The results show that a decrease in the uncertainty of interest rates is expansionary in its own right, independent of the level of interest rates the central bank commits to. Thus, distinct from the literature, a new channel for the effectiveness of forward guidance is suggested. The second essay studies the question of whether the optimal amount of interest rate uncertainty is always zero, or whether monetary policy makers may benefit from an increase in the uncertainty. For this purpose a two-country open economy New Keynesian model with interest rate uncertainty is developed, and the effects of interest rate uncertainty on capital flows and exchange rates are studied. The results emphasize that the impact of an increase in the volatility of interest rate mimics the impacts of an increase in the level of the interest rate, and this suggests that uncertainty about the policy rate path can be used by the central bank as a policy tool. The third essay is empirical, and analyses the sensitivity of the interest rates of various maturities to monetary policy uncertainty, which depends on the language used in the monetary policy statements. To measure market responses to the announcements, I first calculate monetary policy surprises and uncertainty surprises by using Federal Funds Futures and Eurodollar Options, respectively. In the event-study analysis it is shown that the reduction in the variability of monetary policy rate expectations due to the explicit content of the statements, has significant effect on the long-term treasury notes.
Open Access
Information value of the interest rate and the zero lower bound
(Cambridge University Press, 2020) Lee, Sang Seok
Why is a zero lower bound episode long-lasting and disruptive? This paper proposes the interruption of information flow from the central bank’s interest rate decision to the private sector as a channel by which the destabilizing effect of the zero lower bound constraint on the nominal interest rate is amplified. This mechanism is incorporated into the new Keynesian model by modifying its information structure. This paper shows that the information loss at the zero lower bound can increase (a) the duration of the zero lower bound episodes and (b) the size of deflation and output gap loss. The result in this paper demonstrates that enhanced information sharing by the central bank about the state of the economy can be effective at alleviating the cost of the zero lower bound.
Open Access
Macroeconomic effects of unconventional monetary policy in the United States
(2022-08) Sümbül, Münip Kutay
This thesis examines the macroeconomic effects of unconventional policy with smooth local projections in the United States. Unconventional monetary policy is identified using Swanson (2021)’s methodology. I find that the most effective policy tool is the target factor for unemployment and industrial production; however, its effect is not persistent as other tools. For instance, large scale asset purchases (LSAP) induce a significant and persistent impact on industrial production and forward guidance for unemployment. LSAP is the most successful instrument for inflation in the short run, but inflation responds more persistently to forward guidance. Therefore, a mix in which all three tools are used to manage a successful monetary policy can solve short-term and long-term problems for each macroeconomic variable. The findings here are consistent with the previous literature, and they are even supportive.