DP13977 Can more public information raise uncertainty? The international evidence on forward guidance
Author(s): | Michael Ehrmann, Gaetano Gaballo, Peter Hoffmann, Georg Strasser |
Publication Date: | September 2019 |
Date Revised: | September 2019 |
Keyword(s): | central bank communication, disagreement, forward guidance, heterogeneous beliefs, Macroeconomic news |
JEL(s): | D83, E43, E52, E58 |
Programme Areas: | Monetary Economics and Fluctuations |
Link to this Page: | cepr.org/active/publications/discussion_papers/dp.php?dpno=13977 |
Central banks have used different types of forward guidance. This paper reports cross-country evidence showing that, in general, forward guidance mutes the response of government bond yields to macroeconomic news. However, calendar-based guidance with a short horizon counter-intuitively raises it. Using a stylized model where agents learn from market signals, it shows that the public release of more precise information about future rates lowers the informativeness of market signals and, as a consequence, may increase uncertainty and amplify the reaction of expectations to macroeconomic news.