Score contribution per author:
α: calibrated so average coauthorship-adjusted count equals average raw count
We develop a model with control-contingent forward guidance: the central bank explicitly anchors future policy announcements to short run inflation. Even though the model features past promises, we compute a closed form solution using a simple Markov chain representation. This allows us to show analytically that control-contingent forward guidance can rid the model of sunspot liquidity traps. The same holds for a policy of price level targeting, which emerges as a special case. Finally, we leverage this new framework to formally show that announced interest rates are only a means to an end: what truly matters is expected inflation. (Copyright: Elsevier)