communication has little part in monetary policy still applied when alan greenspan was chairman of the fed. his by now famous remark to journalists : “ i guess i should warn you, if i turn out to be particularly clear, you ’ ve probably misunderstood what i ’ ve said ” is a memorable proof of this attitude. all this began to change in the 1990s. on the practical side, policy makers began to make central banks more independent. and the flipside of more central bank independence is more transparency and central bank accountability. at roughly the same time, the advent of inflation targeting acted as a catalyst for enhanced transparency and communication. it was increasingly recognised that having a clear monetary policy objective was making monetary policy more credible and helped anchor inflation expectations. in addition, more central banks came to appreciate the fact that a well - understood monetary policy strategy would allow market participants and the public to form expectations about how the central bank reacts to economic and monetary developments. for this strategy to work, monetary policy makers had to clearly communicate their objective, explain how they plan to achieve it and inform the public about their economic outlook and inflation forecast. as a bundesbanker, i cannot resist the temptation to mention that some consider the bundesbank to be a forerunner in this regard. the bundesbank always assigned great importance to explaining to the public the value of stable prices. we were - and still are convinced that a stability - oriented monetary policy ultimately depends on a public that not only has an abstract notion of stable prices, but also values the concrete advantages of a stable currency. this is why the bundesbank engaged very early on in communication with the public. 2 / 7 bis central bankers'speeches already in 1970, the bundesbank participated in issuing a brochure “ on money ", which illustrated in plain words the importance of money for society. and manfred neumann had certainly a valid point, when he later said that the introduction of monetary targets in the 1970s was used by the bundesbank to provide guidance about its intended policy course1. with hindsight, researchers have confirmed empirically that where communication was used to guide expectations, monetary policy has indeed become more predictable. 2 3 researchers from the bundesbank have recently re - examined the value of central bank communication. they argue that when the public disagrees about the inflation outlook, market participants rely more than usual on interpreting central bank actions to draw inferences about the true state of inflation. 4 they may then interpret an unexpected loosening of

on a forecast, like the prophecies of the oracle of delphi. it is important to recognise that delphic forward guidance does not constitute a commitment to future 3 / 7 bis central bankers'speeches monetary policy actions. it merely gives guidance about the expected level of future interest rates, depending on the economic outlook. in the academic discussion we also find a different form of forward guidance : one in which the central bank commits to maintaining low rates for longer than economic conditions would warrant. 5 this second form of forward guidance is also referred to as odyssean forward guidance. it commits the central bank to remain inactive, even when the inflation outlook has changed, just as odysseus committed himself to remaining on his ship even when he heard the sirens. it is thus no surprise that central banks increasingly resorted to forward guidance as nominal policy rates began approaching the zero lower bound. the bank of japan did so as far back as the late 1990s, the federal reserve introduced forward guidance in august 2011, and the bank of england followed in august 2013. 4. the ecb ’ s forward guidance the ecb first introduced forward guidance into its introductory statements at the press conference in july 2013, saying that it “ expects the key ecb interest rates to remain at present or lower levels for an extended period of time ". this is also referred to as expansionary bias with respect to interest rates. when the asset purchases began, forward guidance was augmented by the assertion that the “ net asset purchases are intended to continue [ … ] until the governing council sees a sustained adjustment in the path of inflation ". one may refer to this as an “ exit criterion ". in addition, forward guidance also states that the governing council “ stands ready to increase our asset purchase programme in terms of size and / or duration ". this is the expansionary bias with respect to asset purchases. mario draghi emphasised at this year ’ s ecb watchers conference that the eurosystem ’ s monetary policy currently consists of three main elements : the key interest rates, asset purchases and forward guidance. this underlines that forward guidance currently plays a prominent role. the ecb ’ s forward guidance is clearly a delphic form of forward guidance. it formulates expectations with respect to the future evolution of interest rates and the volume of asset purchases. it is not a commitment to maintain a looser monetary policy stance for longer than is consistent with price stability. this is no accident. an odyssean form