Based on the liquidity premium theory of the term structure of interest rates, explain how forward guidance

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Based on the liquidity premium theory of the term structure of interest rates, explain how forward guidance about monetary policy can lower long-term interest rates today. Be sure to account for both future short-term rates and for the risk premium. How does the effectiveness of forward guidance depend on its time consistency?

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Money Banking and Financial Markets

ISBN: 978-0078021749

4th edition

Authors: Stephen Cecchetti, Kermit Schoenholtz

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