If the events are temporary, policymakers will have to explain how and when policy is likely to return to normal. Thus, a simple rule provides a valuable benchmark for assessing the appropriate stance of policy. That makes it a useful tool to enhance effective communication and transparency.
Rules and forward guidance In addition to providing important guidance for current policy decisions, Taylor-like rules can also be extremely useful in providing guidance for the expected future path of policy. Such forward guidance has received a good deal of attention recently. One reason for this increased attention is that short-term rates have been constrained by the zero lower bound.