This paper provides an empirical assessment of the power of forward guidance at different horizons, shedding new light on the strength of the "forward guidance puzzle". Our identification strategy allows us to disentangle the change in future interest rates stemming from deviations from the...

This paper investigates how the presence of pervasive financial frictions and large financial shocks changes the optimal monetary policy prescriptions and the estimated dynamics in a New Keynesian model. We find that financial factors affect the optimal policy only to some extent. A policy of...

This paper investigates how the presence of financial frictions and financial shocks changes the definition and the estimated dynamics of the output gap in a New Keynesian model. Financial shocks absorb explanatory power from efficient labor supply shocks, thus changing radically the dynamics of...