For a policy change to be fully transmitted through to the economy, therefore, requires a considerable amount of time even when firms and households are rational and forward-looking. There are then still further lags between the change in the economic situation and the eventual impact on prices. It is such lags in policy transmission that necessitate a forward-looking approach to conducting monetary policy.
For policy actions to be effective, it is necessary to act based on the outlook for economic activity and prices over a sufficiently long term. In the Quarterly Bulletin of the BOE, for example, the economic and price outlook of Monetary Policy Committee members for the next three years is produced and published.