Forward guidance with an escape clause : when half a promise is better than a full one

Borradores de Economia
Número: 
811
Publicado: 
Clasificación JEL: 
E47, E52, E58
Palabras clave: 
Forward guidance, Escape clause, Zero lower bound, Central bank communication
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Using a three-equation New Keynesian model we find that incorporating an escape clause (EC) into Forward Guidance (FG) is welfare improving as it allows the monetary authority to avoid cases in which the cost of reduced flexibility is too high. The EC pro