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|
|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.