Forward Guidance shocks

Hi there,

I’ve been looking for some hints in the forum but I must confess I’m a little bit confused.

The idea is to have a NK model where the CB commits to peg the interest rate, not at the SS but rather at the first level after, say, a productivity shock. So, in practice the CB reacts endogenously to the shock in period t=1.

In period t=2,…,T two things may happen: either the CB follows always the rule or instead it commits to keep it.

As I’m working under PF, if I set the interest rate constant after the shock, the interest rate at t=1 will be different depending on each regime we are, since under FG agents fully anticipate that the CB will keep interest rate and then they incorporate at the beginning that information.

How can I overcome this issue? The ideia would be to have on impact the same decrease in the interest rate, but afterwards they would follow different paths. This could sheds lights under this model the impact of FG.

Thanks in advance…

The big question is whether agents in the first period anticipate the two choices of the central bank in the second period. If not and there is simply a surprise policy change in period 2, you can use the unstable Dynare version (6.x) together with perfect_foresight_with_expectation_errors_solver. See e.g.