In some models, when faced with the zero lower bound, it can be desirable to indicate that future policy rates will be kept lower for longer than might otherwise be the case. 4 Thus, policymakers may want to deliberately commit to deviating from what they would otherwise choose to do under normal conditions, such as following a Taylor-like rule or their normal reaction function.
In these models, such a commitment would tend to raise inflation expectations and lower longrun nominal rates, thereby inducing households and businesses to spend more today. This use of forward guidance asks more of policymakers than just articulating a reaction function.