Document Type

Article

Publication Date

7-2024

Publisher

Elsevier

Source Publication

Journal of Economic Dynamics and Control

Source ISSN

0165-1889

Original Item ID

DOI: 10.1016/j.jedc.2024.104876

Abstract

We compare the economic effects of forward guidance and quantitative easing utilizing the four-equation New Keynesian model of Sims et al. (2023) with agents forming expectations via an adaptive learning rule. The results indicate forward guidance can have a greater influence on macroeconomic variables compared to quantitative easing. Adaptive learning agents estimate a higher effect of forward guidance on the economy leading to a greater impact on expectations, and thus, contemporaneous inflation. However, the performance gap between forward guidance and quantitative easing can change. If quantitative easing includes anticipated shocks, more households finance consumption through long-term borrowing, and the central bank provides a greater percentage of liquidity in the long-term borrowing market, the performance of quantitative easing can increase, and at times, outperform forward guidance.

Comments

Accepted version. Journal of Economic Dynamics and Control, Vol. 164 (July 2024). DOI. © 2024 Elsevier. Used with permission.

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Available for download on Monday, August 03, 2026

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