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Forward guidance: Communication, commitment, or both?
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DOI：10.1016/j.jmoneco.2019.08.015.png)
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Abstract
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Forward guidance has been suggested as a form of commitment (Odyssean) by the policymaker or as a way of conveying information (Delphic). I analyze the interaction between households and the central bank as a game in which the central bank sends messages. Without private information, the set of equilibrium payoffs is independent of any announcements: Pure Odyssean forward guidance is redundant. With private information, communication can have social value. Forward guidance is well suited to leverage preexisting credibility to communicate a central bank's private information about its own preferences or beliefs. (C) 2019 Elsevier B.V. All rights reserved.
Keywords:
Cheap talk
Credibility
Odyssean
Delphic
Central bank
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