As such, forward guidance can serve two main purposes. First, it can provide greater monetary policy accommodation when the policy rate reaches the ZLB, by providing assurance that the central bank will keep the policy rate at low levels for some time, and for a longer period than the public initially expected.
Second, it may prevent market volatility from interfering with and hampering the transmission of monetary policy decisions. Hence, once the policy rate has reached the ZLB, the introduction of forward guidance and the commitment to keep the short-term interest rate at the lower bound for a prolonged period of time would transform the ZLB from a constraint into a deliberate monetary policy strategy.