2016/04/05 by Andrew Hughes Hallett, Nicola Acocella · 1 citation
Economics, Econometrics and Finance · #Climate Change Policy and Economics #Market Dynamics and Volatility #Monetary Policy and Economic Impact
paper · doi:10.1017/s136510051600002x
openalex publication_date 2016/04/05 · openalex created_date 2025/10/10 · openalex updated_date 2026/05/21
We construct a theory of forward guidance in economic policy making in order to provide a framework for explaining the role and strategic advantages of including forward guidance as an explicit part of policy design. We do this by setting up a general policy problem in which forward guidance plays a role, and then examine the consequences for performance when that guidance is withdrawn. We show that forward guidance provides enhanced controllability and stabilizability—especially where such properties may not otherwise be available. As a by-product, we find that forward guidance limits the scope and incentives for time-inconsistent behavior in an economy whose policy goals are ultimately reachable. It also adds to the credibility of a set of policies.