Forward Guidance or Cacophony

Forward Guidance or Cacophony

Title:

Forward Guidance or Cacophony

Number:

14/25

Author(s):

Gamze Demiray, Yasin Kürşat Önder, İbrahim Ünalmış

Language:

English

Date:

July 2014

Abstract:

Until about more than a decade ago, central banks were traditionally run by individual governors. However that trend has changed and countries have started to establish monetary policy committees. One of the potential drawbacks of an individualistic committee (i.e., through voting) over collegial decision making is the possibility of confusing the markets by speaking with too many voices so the effects of central bank’s forward guidance policies are muted. This paper shows that a central bank run by a governor who is acting alone does a better job in terms of “forward guidance”.

Keywords:

Forward Guidance, Voting, Communication.

JEL Codes:

E58; D71; D78

Forward Guidance or Cacophony
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