The Art of Central Banks' Forward Guidance at the Zero Lower Bound

Abstract

This note proposes an alternative way to assess the usefulness of central banks' forward guidance since the start of the global economic crisis, and provides a quantitative assessment of the size of the expansionary monetary impulses, as expressed through the communication policies of four central banks: the European Central Bank, the Federal Reserve, the Bank of England, and the Bank of Japan. Using a novel approach, the Wordscores methodology, I reveal that since 2009, central banks give a temporal guidance of their accommodative monetary policies that can be relied on and expected. Central banks' communication thus delivers important insights to financial markets on the persistence of their unconventional monetary measures, and in particular, on the occurrence of an exit strategy through an Odyssean forward guidance.