Central banks' announcements that rates are expected to remain low could signal either a weak macroeconomic outlook, which would slow expenditures, or a more accommodative stance, which may stimulate economic activity. We use the Survey of Professional Forecasters to show that, when the Fed gave guidance between 2011:III and 2012:IV, these two interpretations coexisted despite a consensus on low expected rates. We rationalize these facts in a New-Keynesian model where heterogeneous beliefs introduce a trade-off in forward guidance policy: leveraging on the optimism of those who believe in monetary easing comes at the cost of inducing excess pessimism in non-believers.
Andrade, Philippe, Gaetano Gaballo, Eric Mengus, and Benoît Mojon.
"Forward Guidance and Heterogeneous Beliefs."
American Economic Journal: Macroeconomics,
Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
General Aggregative Models: Keynes; Keynesian; Post-Keynesian
Interest Rates: Determination, Term Structure, and Effects
Central Banks and Their Policies
Studies of Particular Policy Episodes