French paper warns of forward guidance perils


Forward guidance from central banks can increase macroeconomic volatility if it is not supported by "tight enough" monetary policy and economic agents are not "attentive enough", according to a working paper published by Banque de France on January 8.

The author, Gaetano Gaballo, says when "rationally inattentive" agents receive more information, there are two effects. On one hand, the agents become capable of understanding a greater proportion of macroeconomic volatility. On the other, he says

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