, but describing a reaction function explains how the policy rate will be determined by economic conditions. unfortunately, the science of monetary policy has not reached the point where we can specify a precise or optimal rule for setting policy. that would require an agreed - upon model of the economy – something we don ’ t have yet. nevertheless, i believe systematic policy can be guided by various forms of robust rules, such as the one proposed by john taylor – with which we are all familiar. the attractiveness of taylor - like rules for monetary policy goes beyond their intuitive appeal or the fact that they seem to describe the actual behavior of monetary policy reasonably well. the reality is that taylor - like rules yield very good results in a variety of theoretical settings. this feature of the rules is of enormous practical importance. given our uncertainty about the true model of the economy, knowing that systematic policy in the form of a taylor - like rule delivers good outcomes in a variety of models means that these simple rules can provide useful guidance for policy. systematic policies that provide important information about the policymakers ’ reaction function combined with other information, such as the policymakers ’ economic forecasts, can sharpen forward guidance in ways that reduce policy uncertainty and enhance economic performance. thus, well - designed communications are valuable, and behaving systematically has the added advantage of making those communications easier for the public to understand. bis central bankers ’ speeches balance sheet policies i have focused my discussion on forward guidance with respect to the setting of the policy rate, but these principles apply equally to balance sheet policies. there is room to debate how effective balance sheet policies, such as quantitative easing, have been, and indeed, just how they affect interest rates and economic activity. some think balance sheet policies work through portfolio balance effects that alter risk premia. the quantitative effects on macroeconomic outcomes, however, are unclear. and the theoretical underpinnings for this channel depend on the model and the assumptions made regarding the extent of financial market frictions and the degree and form of market segmentation. others believe that quantitative easing acts through the potential signaling effects associated with large changes in the balance sheet. namely, adding to the balance sheet could signal a more accommodative future policy, which lowers longer - term nominal and real interest rates, and thereby spurs current economic activity, including expected inflation. of course, if the policies and communications regarding the future path of the policy rate were transparent and fully credible, such signaling would not be necessary. moreover,

charles i plosser : influencing expectations in the conduct of monetary policy speech by mr charles i plosser, president and chief executive officer of the federal reserve bank of philadelphia, at the 2014 bank of japan - institute for monetary and economic studies conference “ monetary policy in a post - financial crisis era ”, tokyo, 28 may 2014. * * * the view expressed today are my own and not necessarily those of the federal reserve system or the fomc. highlights president charles plosser discusses his views on the role of forward guidance and transparency in influencing expectations. president plosser outlines his proposals to be more explicit about a reaction function. president plosser notes that one way to be more explicit would be to indicate the likely behavior of the policy rate based on a few different taylor - like rules that have been consistent with past conduct of monetary policy and are robust to our uncertainties regarding the true economic model. president plosser believes that the model created by the federal reserve board staff, called frb / us, seems to be a reasonable starting point for providing economic forecasts based on those rule - based policies ; however, other models would be useful to consider. introduction i would like to thank governor kuroda for inviting me to participate in this thought - provoking conference. i would also like to thank professor maury obstfeld for suggesting a number of interesting topics for us to consider. he has highlighted some issues that i believe are intimately related to one another : namely, the central bank ’ s ability to influence expectations through forward guidance, the role of quantitative easing, and the process of exiting from that easing. indeed, i think it is important that we think about monetary policy more holistically, if you will. how effective we are with forward guidance or quantitative easing can only be assessed in the broader context of a central bank ’ s overall approach to policy, including its approach to communication and transparency. however, before i go any further, i should begin with the usual disclaimer that my views are my own and do not necessarily reflect those of the federal reserve system or my colleagues on the federal open market committee ( fomc ). i want to focus my remarks today on communication and transparency in the conduct of monetary policy. one major reason for this emphasis is the recognition that the stance of monetary policy encompasses not just the current level of the short - term policy rate but its expected future path as well. economists have come to understand that expectations about monetary