The US dollar series refers to US dollar-denominated bonds issued in the US domestic market, while the sterling and euro series refer to bonds issued in domestic or eurobond markets in the respective currencies. Chart 14: Stylised monetary policy responses  13  All speeches are available online at www.bankofengland.co.uk/speeches  13  Chart 15: Monetary policy trade-off lessening 4.0  Preferred trade-off if λ=1  Inflation (%)  3.5 November 2016  Preferred trade-off if λ=0.1  3.0 May 2017 February 2017  2.5 Output gap (%) 2.0  -2.0  -1.5  August 2016, no stimulus  -1.0  -0.5  0.0  0.5  1.0  1.5 August 2016, with stimulus  1.0  Source: Bank of England. Notes: the chart shows Inflation Report projections for inflation and the output gap at the year 2 horizon. A value of 0.1 gives an approximate lower bound on estimates of lambda over the post inflation targeting period. A value of unity would correspond to a “balanced approach” which weighs inflation stabilisation and output gap stabilisation equally. For more information, see ‘Lambda’, speech by Mark Carney at the London School of Economics, 16 January 2017, available at http://www.bankofengland.co.uk/publications/Documents/speeches/2017/speech954.pdf. 14  All speeches are available online at www.bankofengland.co.uk/speeches  14
For instance, a recent ECB study has shown that, following the introduction of a quantitative definition of price stability, inflation persistence has considerably diminished in the euro area, in Switzerland and in five inflation-targeting countries. 2 While a large component of the switch in expectations formation is due to the genuine regime change, the exceptional speed of the adjustment would not have been possible without extensive communication about the onset of a new regime. Communication in difficult times Central bank communication – if supported by an established strategy – might well be a quiet and uneventful activity. In difficult times, however, when the economic outlook darkens exceptionally and confidence falters, communication becomes even more important to explain how the central bank intends to gear its policy. We have, on the one hand, the need to take and communicate swift action in implementing the appropriate monetary policy and in refinancing commercial banks. On the other hand, we need to communicate clearly the adherence of the central bank to the long-term objectives of policy and the way it intends to steer the policy course back to a normal path once the abnormal circumstances and risks have subsided. Communication in difficult times is inherently challenging for all central banks. However, it is facilitated by two fundamental components of the ECB’s monetary policy strategy. The first is the quantification of a price stability objective. This grants a very significant level of predictability.