The Power of Forward Guidance in a Quantitative TANK Model

We quantify the macroeconomic effects of interest rate forward guidance in an estimated medium-scale two-agent New Keynesian (TANK) model. In general, such models can dampen or amplify the power of forward guidance compared to a representative agent model. Our empirical estimates indicate a dampening, as there is sufficient countercyclical redistribution. An interaction with asset purchases gives rise to non-linear effects that depend on the horizon of forward guidance