Make-up strategies with finite planning horizons but infinitely forward asset prices

• 成果类型: Article
• 署名作者: Dupraz, Stephane; Le Bihan, Herve; Matheron, Julien
• 署名单位: European Central Bank; Bank of France; European Central Bank; Bank of France; Paris School of Economics
• 刊物名称: JOURNAL OF MONETARY ECONOMICS
• ISSN/ISSBN: 0304-3932
• DOI: 10.1016/j.jmoneco.2023.11.006
• 发表日期: 2024
• 关键词: Make-up strategies; Forward-guidance puzzle; Finite planning horizons

摘要

How effective are forward -guidance and make-up strategies? Standard models find them extremely effective, but by assuming households' inflation expectations respond much more strongly than in the data. Models where households discount the future find them much less effective and match the small reaction of inflation expectations, but not the actual large reaction of asset prices. We build a model that rationalizes both. Households cognitively discount the future, but more forward -looking financial market professionals incorporate their expectations of future policy into the long-term nominal rates faced by all. We find that make-up strategies have sizably better stabilization properties than inflation targeting.