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A note on simulating the effect of monetary policy changes using only forward curves as inputs

Author

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  • Ansgar Rannenberg

    (Economics and Research Department, National Bank of Belgium)

Abstract

I show that in linear rational expectation models, the effect of a monetary tightening can be simulated using contemporaneous and anticipated monetary policy shocks that replicate the forward curves observed during the period of interest, normalized with the forward curve observed in the quarter before the tightening period of interest begins. In particular, the shocks in response to which the tightening occurs are irrelevant. All required information is incorporated in the normalized forward curves. I confirm this result via simulations and a formal proof. Then I use it to assess the effects of the recent monetary tightening in the Euro Area..

Suggested Citation

  • Ansgar Rannenberg, 2025. "A note on simulating the effect of monetary policy changes using only forward curves as inputs," Working Paper Research 471, National Bank of Belgium.
    • Handle: RePEc:nbb:reswpp:202501-471
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    File URL: https://www.nbb.be/nl/articles/note-simulating-effect-monetary-policy-changes-using-only-forward-curves-inputs
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    More about this item

    Keywords

    : policy counterfactualsmonetary policyinterest rate expectations;

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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