Forward guidance (also used in German, more rarely forward guidance)

Term that entered the technical language with regard to central bank policy around 2013. What is meant is that a central bank makes its monetary policy intentions known in principle in advance with regard to a longer period of time. The President of the ECB had announced in July 2013 that the low interest rate policy in the euro area would continue “not for six months, not for twelve months, but beyond.” With this announcement, the central bank ultimately wants to encourage companies to continue borrowing from banks at low interest rates and to make capital investments. – The main criticism of forward guidance is that it can easily put the central bank in a dilemma. This is the case when developments occur that make it necessary to deviate from forward guidance. This can then quickly lead to a loss of credibility for monetary policy. – See code words, guidance, verbal, greenspeak, willingness to act, moral suasion, open-mouth policy, signaling, stealth policy, fuzziness, constructive. – See ECB Monthly Bulletin, July 2013, p. 7 ff. (explaining forward guidance; justification); Deutsche Bundesbank Monthly Bulletin, August 2013, p. 31 ff. (favorable assessment throughout); ECB Monthly Bulletin, April 2014, p. 73 ff. (textbook account of forward guidance; numerous references); Deutsche Bundesbank Monthly Bulletin, May 2014, p. 17 ff. (on issues of coordination with general economic policy; references).

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University Professor Dr. Gerhard Merk, Dipl.rer.pol., Dipl.rer.oec.
Professor Dr. Eckehard Krah, Dipl.rer.pol.
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