NBER paper suggests ‘dot plot’ for financial conditions
Producing forward guidance of asset prices will improve central bank communications, economists say
Communicating central banks’ expected paths for financial conditions could reduce market uncertainty and improve monetary policy transmission, a paper from the US National Bureau of Economic Research has found.
The study, published this month, argues that forward guidance on the policy rate alone is insufficient because it forms only one component of broader financial conditions.
The authors – Ricardo Caballero and Alp Simsek – propose a framework in which the US Federal Reserve communicates an
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