In other words, such a communication policy aims to inform the public about the “normal” policy reaction function of monetary policy or the conduct of traditional monetary policy in a normal economic environment where the zero lower bound is absent. This practice may favorably influence financial markets in several ways.
First, clear understanding by the public of a central bank’s policy reaction function may help the public to adjust their future short-term interest rate expectations accordingly. This would affect longterm interest rates, since the yields reflect the average of expected future short-term interest rates.