Sholopak Vladyslav, Undergraduate Student of the Department of Finance, Ivano-Frankivsk National Technical University of Oil and Gas, Ivano-Frankivsk, Ukraine

ORCID ID: 0000-0001-7492-3578
e-mail: vladsholopak@gmail.com

Central Bank Communication: Forward Guidance

Abstract. Introduction. Incomprehension and misinterpretation of central bank actions by the markets lead to uncertainty. As a result, the volatility of inflation, prices, and assets increases. The low-interest-rate in today’s macroeconomic environment is a common thing. In such circumstances, the economy is so difficult to adapt to internal and external shocks, so inefficiencies caused by incorrect or untimely statements by the regulator can exacerbate the problem and provoke unjustified risks. These new conditions have led to changes in the way information is covered and create a new communication approach.

Purpose. Thus, the article aims to systematize the main patterns of forwarding guidance mechanism as a communication tool in monetary policy. Its use in such developed economies as Japan, the United Kingdom, the United States, and the European Union. Identification of major trends in the use of forwarding guidance form during the crises of 2008 and 2020. Determination of why targets are 2% inflation with the description of monetary and communication tools, research of information coverage approaches.

Results. The central bank statements affect to decisions of various market participants and can be divided into economic forecasts and forward guidance. According to the forwarding guidance classification, the analysis was made of 2020 statements and compared with the 2008 statements, for each of the studied countries. The finding shows that there has been a shift from economic forecasts to forward guidance. A model consisting of four elements has been identified for the four central banks: target, monetary instruments, statement approach, and information tools.

Conclusions. In general, new types such as state-contingent and calendar-based statements began to be used during the last crisis. The most common monetary instrument that appears in statements being the interest rate. The common goals for all central banks are to focus on price stability, which is expressed in inflation of 2%. This target must be long-term and in numerical terms to effectively management inflation expectations and bring down volatility. All banks strive for simplicity and clarity in their statements, and they use a wide range of information tools.

Keywords: central bank communicatioт; forward guidance; non-traditional monetary policy instrument.

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