Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/212453 
Year of Publication: 
2019
Series/Report no.: 
Bank of Finland Research Discussion Papers No. 19/2019
Publisher: 
Bank of Finland, Helsinki
Abstract: 
We provide suffcient conditions for when a rational expectations structural model predicts bounded responses of endogenous variables to forward guidance announcements. The conditions coincide with a special case of the well-known (E)xpectation-stability conditions that govern when agents can learn a Rational Expectations Equilibrium. Importantly, we show that the conditions are distinct from the determinacy conditions. We show how the conditions are useful for diagnosing the features of a model that contribute to the Forward Guidance Puzzle and reveal how to construct well-behaved forward guidance predictions in standard medium-scale DSGE models.
JEL: 
E31
E32
E52
D84
D83
Persistent Identifier of the first edition: 
ISBN: 
978-952-323-294-5
Document Type: 
Working Paper

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