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154th Biweekly Academic Forum

作者:     日期:2015-11-09    来源:

1. Subject: Forward Guidance and Credible Monetary Policy

2. Speaker: Bingbing Dong, lecturer of School of finance, Central University of Finance and Economics. He graduated from University of Virginia in 2015 as doctor of economics, got bachelor degree in Central University of Finance and Economics and master degree of economics in CCER Peking University. His major research direction is macro economics, finance, especially the field of asset pricing and monetary policy. His research has been preached in several international conferences, including nonlinear dynamics and econometrics meeting, the annual meeting of the Royal economic Society, and the annual meeting of Eastern Economic Association Annual Meeting.

3. Time: November 11th 2015 (Wednesday), 12:30-13:30

4. Venue: Meeting Room 913, Main Building

5. Host: Zhigang Huang, Vice Professor from School of Finance, Central University of Finance and Economics

Abstract:The effectiveness of forward guidance depends crucially on the credibility of the central bank. Instead of assuming full commitment or full discretion of the central bank, this paper sheds light on the best credible forward guidance policy a central bank can offer by solving for the whole set of sustainable sequential equilibria (SSE) in a standard New Keynesian model with the occasionally binding constraint of a nominal interest rate of zero. The inflation bias resulting from eliminating price distortion under the best SSE is much smaller than the bias under full discretion. In the presence of the zero lower bound (ZLB), while the full commitment solution implies that forward guidance has a longer duration of the nominal rate at zero bound followed by a quick revert-to-normal path, the best SSE features low but non-zero rates, and even a prolonged period of higher inflation after the recession ends. To make forward guidance credible and as simulative as possible, the adjustment of policy rates, and in particular, the rise of policy rates, should be smooth and gradual. In other words, policy normalization does not mean non-accommodation. Ramsey equilibria are not generally implementable.