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Working Papers, No. 2015-10, December 2015
What Does Anticipated Monetary Policy Do? (Revised April 2017)

Applying sign and zero restrictions to survey forecasts embedded in a VAR, we study the economic effects of news about future monetary policy— the type of shock induced by credible "forward guidance." We find that such policy has large, immediate, and persistent effects on inflation and real activity, that these effects are larger than those of unanticipated monetary policy, and that the economic responses grow larger as the horizon of the guidance moves farther into the future. Our results also suggest that conventional monetary-policy shocks themselves are effective only because they shift interest-rate expectations.

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