",,,, use DSGE (dynamic stochastic general equilibrium) models to estimate the effects of forward guidance on macroeconomic variables
such as GDP growth,
core PCE inflation,
the federal funds rate.
A simulation in which the FOMC committed to extending the “liftoff” date of the FFR for two quarters had “implausibly” large effects
including a sharp spike in GDP growth over the next two years, !!!
" experimentation with a more realistic upper bound on the response of the long-term bond yield showed
a policy-driven shift in in FFR market expectations
would have sizable, though reasonable, effects on GDP growth
but only a modest impact on inflation.”
Yes the hand visible intervenes
But listen children .....
"That the initial simulation drove such a large change in GDP remains “a forward guidance puzzle,”