Disciplining expectations and the forward guidance puzzle

Christoffel, Kai; Mazelis, Falk; Montes-Galdón, Carlos; Müller, Tobias

doi:10.1016/j.jedc.2022.104336

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Allowing For Inattention To Central Bank Announcements1

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2024

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“…More generally, it is found that integrating survey-based forecasts within an estimated DSGE model can discipline model expectations and significantly mitigate the FG puzzle, while keeping the assumption of rational expectations. Müller, Christoffel, Mazelis and Montes-Galdón (2020) show that estimating a work-horse large policy model of the euro area, such as the new area wide model (NAWM) augmented with survey and financial market-based forecasts helps to contain the FG puzzle. It also improves the out-of-sample forecast accuracy of the resulting model (dubbed the "new area wide model with expectations", or NAWM-X).…”

Section: Allowing For Inattention To Central Bank Announcementsmentioning

confidence: 99%