1 The authors provide an extended and insightful discussion of the theory and practice of providing forward guidance about monetary policy. They offer one central lesson: Data-based forward guidance is mostly good, while time-based forward guidance is mostly bad. The authors show that data-based guidance has desirable characteristics and can make monetary policy more effective.
When clearly articulated and well understood, it allows markets to react appropriately to incoming data, doing the heavy lifting for the central bank. Time-based guidance is found to have certain bad characteristics and should be avoided, except at the zero lower bound and when other options are not available or not working.