https://macropaperwarehouse.com/authors/sebastian-giesen/Sebastian GiesenHugo -- gohugo.ioen-usWed, 01 Jan 2025 00:00:00 +0000https://macropaperwarehouse.com/papers/interest-rate-pegs-and-the-reversal-puzzle-on-the-role-of-anticipation/Wed, 01 Jan 2025 00:00:00 +0000https://macropaperwarehouse.com/papers/interest-rate-pegs-and-the-reversal-puzzle-on-the-role-of-anticipation/<p>This paper revisits the &ldquo;reversal puzzle&rdquo; — the counterintuitive result, first documented by Carlstrom, Fuerst and Paustian (CFP, 2015), that in standard New Keynesian models the effect of forward guidance (technically implemented as a perfectly anticipated interest rate peg) can switch from expansionary to contractionary as the duration of the peg increases. The authors&rsquo; central claim is that the appearance of the puzzle hinges on agents&rsquo; degree of anticipation of the peg, and they examine three polar/intermediate cases: perfect anticipation, no anticipation, and imperfect anticipation.</p>