Introduction

Over the past decade central banks around the world have gradually moved towards establishing more transparency in their conduct of monetary policy (see Dincer and Eichengreen 2007 and Geraats 2009). In particular, increasing emphasis is being given to effective communication of the prospective future course of monetary policy. The standard practice among central banks is to provide forward guidance via a projection or forecast of their goal variables (mainly inflation and real GDP growth) and other standard channels, such as press conferences, statements and speeches. A few inflation-targeting central banks have gone one step further and give quantitative forward guidance by publishing their own projection or forecast of the future path of policy rates. This practice is currently pursued by four inflation targeters: the Reserve Bank of New Zealand (since 1997), Norges Bank (since 2005), the Swedish Riksbank (since 2007) and the Czech National Bank (since 2008). The vast majority of central banks, in particular the leading non-inflation-targeting central banks, the Federal Reserve, the ECB and the Bank of Japan, but also the Bank of England as one of the leading inflation-targeting central banks, have so far decided against publishing their own interest rate path.

From a theoretical point of view, the main argument brought up in favour of the central bank publishing its own interest rate path is that it would enhance the central bank's ability to manage expectations and thereby facilitate the transmission of monetary policy (Woodford 2005; Svensson 2006, 2009; Rudebusch and Williams 2008).