Monetary policy

Philosophy

Social psychology

Economics

New Keynesian economics

Keynesian economics

Psychology

Monetary economics

Epistemology

Central bank

Pessimism

Optimism

American Economic Journal Macroeconomics

Central banks’ announcements that rates are expected to remain low could signal either a weak macroeconomic outlook, which would slow expenditures, or a more accommodative stance, which may stimulate economic activity. We use the Survey of Professional Forecasters to show that, when the Fed gave guidance between 2011:III and 2012:IV, these two interpretations coexisted despite a consensus on low expected rates. We rationalize these facts in a New-Keynesian model where heterogeneous beliefs introduce a trade-off in forward guidance policy: leveraging on the optimism of those who believe in monetary easing comes at the cost of inducing excess pessimism in non-believers. (JEL D83, E12, E43, E52, E58, E65)

Forward Guidance and Heterogeneous Beliefs