Systematic policies that provide important information about the policymakers’ reaction function combined with other information, such as the policymakers’ economic forecasts, can sharpen forward guidance in a way that reduces policy uncertainty and enhances economic performance. Thus, well-designed communications are valuable, and behaving systematically has the added advantage of making those communications easier for the public to understand.
Increasing transparency But what else should the central bank convey? For example, should it publish forecasts of variables in its policy reaction function and should these forecasts be based on the most likely path that the policy rate will follow or on some other assumption?