Forward Guidance and Expectation Formation: A Narrative Approach

Abstract: How forward guidance influences expectations is not fully understood. To study this, I construct central bank data that includes forward guidance and its attributes, central bank projections, and quantitative easing, which I combine with survey data. I describe how, when, and where forward guidance has worked. I estimate that forecasters revised their interest rate forecasts in the intended direction by five basis points on average following a forward guidance change. I provide estimates for The Federal Reserve, European Central Bank, Bank of England, Bank of Canada, Reserve Bank of Australia, Reserve Bank of New Zealand, Sveriges Riksbank, and Norges Bank.