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Quantitative or Qualitative Forward Guidance: Does it Matter?

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  • Gunda-Alexandra Detmers
  • Özer Karagedikli
  • Richhild Moessner

Abstract

Every monetary policy decision by the Reserve Bank of New Zealand (RBNZ) is accompanied by a written statement about the state of the economy and the policy outlook, but only every second decision by a published interest rate forecast. We exploit this difference to study the relative influences of qualitative and quantitative forward guidance. We find that announcements that include an interest rate forecast lead to very similar market reactions across the yield curve as announcements that only include written statements. We interpret our results as implying that central bank communication is important, but that the exact form of that communication is less critical. Our results are also consistent with market participants understanding the conditional nature of the RBNZ interest rate forecasts.

Suggested Citation

  • Gunda-Alexandra Detmers & Özer Karagedikli & Richhild Moessner, 2018. "Quantitative or Qualitative Forward Guidance: Does it Matter?," CESifo Working Paper Series 7314, CESifo.
    • Handle: RePEc:ces:ceswps:_7314
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    Cited by:

    1. Carola Conces Binder & Rodrigo Sekkel, 2024. "Central bank forecasting: A survey," Journal of Economic Surveys, Wiley Blackwell, vol. 38(2), pages 342-364, April.
    2. Coenen, Günter & Montes-Galdón, Carlos & Saint Guilhem, Arthur & Hutchinson, John & Motto, Roberto, 2022. "Rate forward guidance in an environment of large central bank balance sheets: a Eurosystem stock-taking assessment," Occasional Paper Series 290, European Central Bank.
    3. Boris Hofmann & Dora Xia, 2022. "Quantitative forward guidance through interest rate projections," BIS Working Papers 1009, Bank for International Settlements.
    4. Sui-Jade Ho & Oezer Karagedikli, 2021. "Effects of Monetary Policy Communication in Emerging Market Economies: Evidence from Malaysia," MAGKS Papers on Economics 202126, Philipps-Universität Marburg, Faculty of Business Administration and Economics, Department of Economics (Volkswirtschaftliche Abteilung).
    5. R. Erasmus & H. Hollander, 2020. "A Forward Guidance Indicator For The South African Reserve Bank: Implementing A Text Analysis Algorithm," Studies in Economics and Econometrics, Taylor & Francis Journals, vol. 44(3), pages 41-72, December.

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    More about this item

    Keywords

    monetary policy; forward guidance; interest rate forecasts;
    All these keywords.

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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