US forward guidance had limited effectiveness, Fed paper finds

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The Federal Reserve’s forward guidance regime between 2009 and 2016 had “limited effectiveness” due to households and firms having incomplete information, a team of Fed researchers finds.

In Forward guidance with Bayesian learning and estimation, Christopher Gust, Edward Herbst and David López-Salidouse gather data on household and firm activity, as well as data on output gap, inflation and interest rates.   

They find that households and firms were slow to learn about forward guidance, only

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