The Research On The Expected Management Effect Of Fed’s Forward Guidance

Forward guidance is an unconventional monetary policy tool used by monetary authorities to guide the public’s expectations for short-and long-term market developments by communicating information related to future economic trends to the public.Since the 2008 financial crisis,the Fed has been actively using forward guidance to communicate with the public about future economic trends in order to achieve its ultimate policy goals of price stability,job creation,economic stimulus and increased output.The Fed practiced forward guidance during the financial crisis and its use became more sophisticated,forming open-ended guidance,time-based guidance and state-based guidance.In December 2015,the Fed raised interest rates for the first time since the financial crisis,marking the fed’s formal move into normalization of monetary policy,in which forward guidance will not apply to normal economic conditions.In March 2020,with the outbreak of the Novel Coronavirus,the Federal Reserve once again implemented forward guidance,which guides public expectations,stabilizes market confidence and achieves the effect of stimulating the economy.Therefore,this paper takes the Federal Reserve,which has been exploring forward guidance monetary policy for a long time,as the research object,and studies the effect of forward guidance expectation management from the perspective of interest rate expectation and inflation expectation.Based on the theory of expectations and the mechanism of forward guidance monetary policy expectation management,this paper sorted out 97 federal Open Committee monetary policy reports from the financial crisis to the outbreak of COVID-19(December 2008 to December 2020),conducted text analysis and constructed the proxy variables of forward guidance.At the same time,monthly macroeconomic data of the same period(December 2008 to December 2020)are selected,and on this basis,vector autoregression model(VAR)is constructed to explore the guiding effect of forward guidance monetary policy on public expectations.From the empirical results can draw the following conclusion: from the perspective of the effect of lead rate expectations that the fed forward-looking guidance can affect the public’s expectations of short-term interest rates,thereby affecting the stock market and bond market,investors will lead to increased demand for investment in the short term,causes asset prices to rise,but the medium and long run effects is relatively weak;From the perspective of the effect of guiding inflation expectations,the Forward guidance policy of the Federal Reserve can effectively relieve the pressure on the labor market,reduce the unemployment rate,stabilize the labor market and increase employment.Finally,based on the exploration of the expected effect of the Federal Reserve’s forward guidance monetary policy guiding the public,combined with Chinese current expectation management system,this paper expounds the efforts that can be made in the construction of Chinese future expectation management framework system and the policy enlightenment obtained.