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Quantitative forward guidance and the predictability of monetary policy

By Lars Winkelmann

Abstract

The publication of a projected path of future policy decisions by central banks is a controversially debated method to improve monetary policy guidance. This paper suggests a new approach to evaluate the impact of the guidance strategy on the predictability of monetary policy. Using the example of Norway, the empirical investigation is based on jump probabilities of interest rates on central bank announcement days before and after the introduction of quantitative guidance. Within the standard semimartingale framework, we propose a new methodology to detect jumps. We derive a representation of the quadratic variation in terms of a wavelet spectrum. An adaptive threshold procedure on wavelet spectrum estimates aims at localizing jumps. Our main empirical result indicates that quantitative guidance significantly improves the predictability of monetary policy

Topics: semimartingales, Central bank communication, interest rate projections, Locally Stationary Wavelet processes, jump detection, 310 Statistik, 330 Wirtschaft, ddc:310, ddc:330
Publisher: Humboldt-Universität zu Berlin, Wirtschaftswissenschaftliche Fakultät
Year: 2013
OAI identifier: oai:edoc.hu-berlin.de:18452/5108
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