Quantitative or qualitative forward guidance: Does it matter?

BIS Working Papers  |  No 742  | 
29 August 2018



Many central banks provide forward guidance about the expected path of short-term interest rates. However, different central banks communicate this information in different ways. The Reserve Bank of New Zealand (RBNZ) was the first central bank to provide quantitative forward guidance: it publishes an interest rate forecast with every second monetary policy decision. And it accompanies all its policy decisions with a written statement about the state of the economy and the policy outlook, which includes qualitative guidance. This allows us to compare two types of forward guidance and their effects on market expectations.


In this paper, we use the different types of information that the RBNZ provides with its policy rate decisions to answer the following question: does it matter for the expectations of market participants as to the future monetary policy stance whether forward guidance is quantitative, by means of rate forecasts, or whether it is qualitative, in the form of policy statements?


We find that the RBNZ's forward guidance has significant effects on asset prices whether or not the information is quantitative or qualitative. Announcements that include an interest rate forecast and those that include only a written statement lead to a very similar market response across the yield curve. This suggests that earlier studies may overstate the effects on market prices of publishing rate forecasts. In other words, markets seem to draw much the same conclusions from written statements as they do from rate forecasts. Our results imply that central bank communication is important, but that the exact form of that communication is less critical. They also suggest that market participants understand rate forecasts as conditional, so that concerns about these being read as binding promises would seem to be unwarranted.



Every monetary policy decision by the Reserve Bank of New Zealand (RBNZ) is accompanied by a written statement about the state of the economy and the policy outlook, but only every second decision by a published interest rate forecast. We exploit this difference to study the relative influences of qualitative and quantitative forward guidance. We find that announcements that include an interest rate forecast lead to very similar market reactions across the yield curve as announcements that only include written statements. We interpret our results as implying that central bank communication is important, but that the exact form of that communication is less critical. Our results are also consistent with market participants understanding the conditional nature of the RBNZ interest rate forecasts.

JEL classification: E43, E44, E52, E58, G12

Keywords: monetary policy, forward guidance, interest rate forecasts