We must avoid such datebased forward guidance, whether it uses specific calendar dates or more vague references alluding to a “considerable period” of time. As policymakers, we do not know what the future holds, so forward guidance in this form cannot be very credible. Unfortunately, it is unlikely that policymakers will adopt a specific reaction function in the near term.
These same developments fed a surge in consumption through the effects on wealth of rising house prices and through various financial innovations that allowed many households to liquefy their housing wealth. Financial intermediaries were further exposed by generally inadequate compensation for risk and increased leverage.