Fear of Forward Guidance

This article is a response to the review of Adrian et al. (2018) by Yudaeva (2018), which summarizes the case of the Bank of Russia against the publication of key rate forecasts, a communication strategy known as conventional forward guidance. We believe that the case in favour of publishing the Bank of Russia’s key rate forecast is at present not stated sufficiently coherently. Our note attempts to fill this gap. Extending the argument put forward by Adrian et al. (2018) we provide a comprehensive review of the working papers, staff notes and leadership comments related to interest rate expectations and monetary policy communication by four central banks that have had practical experience with the application of conventional forward guidance. We conclude with an evaluation of the validity of the commonly voiced concerns regarding its adoption in Russia, based on the reviewed literature.