More broadly, economists have come to understand that expectations, including expectations about monetary policy, play an important role in determining economic outcomes, such as real economic growth and inflation. One element of communication that has received a good deal of attention is forward guidance.
Forward guidance is central bankers’ speak for communication about the future course of monetary policy, and particularly about the likely path of the short-term policy rate. One reason for this increased attention on the future path of policy is that short-term rates have been constrained by the zero lower bound.