Does my model predict a forward guidance puzzle?
Gibbs, Christopher G.; McClung, Nigel (15.12.2023)
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Volyymi
51Numero
December 2023
2023
Julkaisun pysyvä osoite on
https://urn.fi/URN:NBN:fi:bof-202109131539Tiivistelmä
We show how to characterize the economic forces that generate the forward guidance puzzle in a wide variety of structural macroeconomic models. We accomplish this by showing that studying the predictions of forward guidance announcements is essentially the same as conducting E-stability analysis under adaptive learning. We show that the Iterative E-stability criterion identifies all of the most prominent forward guidance puzzle resolutions proposed in the literature, provides ways to evaluate their robustness, shows how new resolutions may be constructed, and is scalable to quantitatively relevant models. We show some common resolutions are robust while others are not. We also devise a novel solution to the forward guidance puzzle: sunspots.