2012 Articles

Methods of Policy Accommodation at the Interest-Rate Lower Bound

Woodford, Michael

From page 2 -- 'This paper discusses two of the main alternatives, that have been the focus not only of considerable recent discussion, but a fair amount of policy experimentation, in a number of countries. The first of these is forward guidance — explicit statements by a central bank about the outlook for future policy, in addition to its announcements about the immediate policy actions that it is undertaking. While this is not necessarily a dimension of policy that becomes relevant only at the interest-rate lower bound, the experience of reaching the lower bound has undoubtedly increased the willingness of central banks like the Fed to experiment with more explicit forms of forward guidance, making statements about future policy that are both more precise and quantitative and that refer to policy decisions much farther in the future than was understood to be intended in the case of past (relatively cryptic) statements about future policy.'