Wednesday, 4 September 2013

Forward guidance.

I’m delighted we’re now being forwardly guided by central banks. Just one problem though.

Interest rate cuts obviously work in that they induce the private sector to pull investment forward: i.e. invest now rather than in a few years time when rates may have risen. But rates have now been so low for so long that the interest rate cuts will by now be losing their effect or may even have ceased to have any effect at all: never mind have an effect in two years time, when according to the forwardly guiding central bankers, those rates will still be low.

But perhaps I’ve missed something. „Guidance“ will be appreciated.

1 comment:

  1. Forward guidance is divination. Michael Woodford éminence grise of "New Keynesian" monetary economists espouses it here:


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