Description

Central banks’ communication policies have changed dramatically over the last decades. They have moved from being very secretive to much more transparency with a special emphasis on communications. This is not only related to a cultural change in the society at large that demands more transparency from their authorities or to technological changes that allow more scrutiny over policy actions of authorities in general, but also because central bankers have realized that monetary policy works much better when it is open and transparent. In addition, in a world of independent central banks a greater degree of openness and transparency protects them from political pressures.

Forward guidance is a form of communication that has been used by central banks for years, but that became much more relevant and explicit with the global financial crisis. In this note the evolution, benefits, costs, challenges and perspectives of this form of communication are analyzed.