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Central Bank Policy Paths and Market Forward Rates: A Simple Model
Author(s) -
GRAEVE FERRE,
IVERSEN JENS
Publication year - 2017
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/jmcb.12413
Subject(s) - simple (philosophy) , economics , monetary policy , forward guidance , interest rate , econometrics , central bank , monetary economics , financial economics , macroeconomics , inflation targeting , credit channel , philosophy , epistemology
Increasingly many central banks announce likely paths for future policy rates. Recent experience suggests that market forward rates can differ substantially from those announced. Models commonly adopted in policy analysis ignore such differences. This paper studies a simple model that can capture deviations between announced paths and market forward rates. We detail the macroeconomic transmission of such deviations and show how the model can inform policy deliberations.