Credibility of Optimal Forward Guidance at the Interest Rate Lower Bound, Accessible Data

Accessible version of figures

Figure 1: The Value of Commitment in a Stylized Model

Source: Simulation data created by the author.

Period Policy rate (Percent change, annual rate) Inflation (Percent change, annual rate) Output Gap (Percent)
Discretionary Policy Commitment Policy Discretionary Policy Commitment Policy Discretionary Policy Commitment Policy
0 3.50 3.50 2.00 2.00 0.00 0.00
1 0.00 0.00 0.02 1.64 -10.41 -6.18
2 3.50 0.00 2.00 2.49 0.00 2.78
3 3.50 0.00 2.00 2.22 0.00 1.85
4 3.50 0.00 2.00 2.04 0.00 0.97
5 3.50 2.11 2.00 1.95 0.00 0.11
6 3.50 3.78 2.00 1.94 0.00 -0.23
7 3.50 3.68 2.00 1.96 0.00 -0.15
8 3.50 3.62 2.00 1.97 0.00 -0.10
9 3.50 3.58 2.00 1.98 0.00 -0.06
10 3.50 3.55 2.00 1.99 0.00 -0.04

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Figure 2: Costs and Benefits of Reneging on the Promise

Source: Simulation data created by the author.

Quarterly crisis probability (percent) Short-run benefit of reneging on the promise (Welfare loss) Long-run cost of losing reputation (Welfare loss)
0 0.014 -0.010
0.01 0.014 -0.006
0.02 0.014 -0.002
0.03 0.014 0.002
0.04 0.014 0.006
0.05 0.014 0.009
0.06 0.014 0.013
0.07 0.014 0.017
0.08 0.014 0.021
0.09 0.014 0.025
0.1 0.014 0.029
0.11 0.014 0.033
0.12 0.014 0.037
0.13 0.014 0.041
0.14 0.014 0.044
0.15 0.014 0.048
0.16 0.014 0.052
0.17 0.014 0.056
0.18 0.014 0.060
0.19 0.014 0.064
0.2 0.014 0.068
0.21 0.014 0.072
0.22 0.014 0.076
0.23 0.014 0.080
0.24 0.014 0.084
0.25 0.014 0.088
0.26 0.014 0.092
0.27 0.014 0.096
0.28 0.014 0.100
0.29 0.014 0.104
0.3 0.014 0.108
0.31 0.014 0.112
0.32 0.014 0.116
0.33 0.014 0.120
0.34 0.014 0.124
0.35 0.014 0.128
0.36 0.014 0.132
0.37 0.014 0.137
0.38 0.014 0.141
0.39 0.014 0.145
0.4 0.014 0.149
0.41 0.014 0.153
0.42 0.014 0.157
0.43 0.014 0.161
0.44 0.014 0.165
0.45 0.014 0.169
0.46 0.014 0.173
0.47 0.014 0.177
0.48 0.014 0.182
0.49 0.014 0.186
0.5 0.014 0.190

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