Thus, forward guidance and communication regarding future policy decisions take on greater significance. However, forward guidance is not a separate or independent policy tool. Its effectiveness is intimately related to other features of monetary policy. Monetary policy should be thought of more holistically, if you will.
How effective we are with forward guidance, for example, can only be assessed or thought of in the context of a central bank’s overall approach to policy, including its approach to communication and transparency. In particular, I see a credible, rule-like approach to policy and the general openness and transparency of the policy process as essential elements in shaping expectations.