work, the content of the forward guidance has to reflect the central bank ’ s mandate. only then will the central bank ’ s announcements be perceived as credible. let me explain this in more detail. from a conceptual perspective two types of forward guidance can be distinguished depending on the objective pursued3. first, forward guidance can aim at merely providing greater transparency about policy intentions. this can entail two elements. the first element is to provide greater clarity about the central bank ’ s assessment of the economic outlook that is relevant for the assessment of medium term risks to price stability and further policy goals it may pursue. the second element is to provide more clarity on how the central bank will react to such outlook. in certain cases, the market ’ s assessment of the economic outlook may clearly deviate from the central bank ’ s assessment. moreover, even with a shared assessment of the outlook, the market may expect a systematically different policy response than pursued by the central bank. in these cases, forward guidance can help the central bank in clarifying its assessment of future economic conditions and its reaction function. see brand et al. ( 2010 ), gurkaynak et al. ( 2005 ), kuttner and posen ( 1999 ), bibinger et al. ( 2013 ). see praet ( 2013 ) for a detailed exposition of this distinction. see also campbell et al. ( 2012 ) for the taxonomy of “ odyssean ” vs. “ delphic ” forward guidance underlying this distinction. bis central bankers ’ speeches this can be especially valuable at times when upward volatility in financial markets risks creating risk premia along the yield curve, thereby inducing a premature withdrawal of monetary accommodation. second, forward guidance can serve to communicate to market participants that the central bank ’ s policy intentions have changed. most notably, the central bank may try to convince markets that it would keep interest rates low, even if this would imply inflation well above its previous objective, at least temporarily. the promise of higher future inflation, if credible, induces private agents to substitute future for current consumption, hence providing additional stimulus today. this type of forward guidance is closer to the academic concept of forward guidance in the strict sense – as discussed, for example, in woodford ( 2012 ). the main challenge of such guidance is its inherent inconsistency over time and thus lack of credibility. when the time comes, the central bank may be tempted to deviate from its prior commitment : once the

the policy - relevant horizon ; and second, to anchor rate expectations more firmly around a path that ensures the degree of monetary accommodation warranted by the outlook for price stability. the ecb ’ s objective is not to suppress money market volatility. in this crisis, abundant central bank liquidity has compressed prices in many financial market segments. the ability of markets to price two - way risk will be a factor of resilience along the normalisation path. our objective is therefore not to steer money market rates towards a predefined value but to ensure that their fluctuations remain within reasonable bounds and do not hurt economic recovery. when interpreting the governing council ’ s forward guidance, three elements are particularly relevant. first, it has been provided before exhausting the scope for further reductions in the key ecb interest rates. in fact, the forward guidance formulation, as decided unanimously by the governing council, explicitly incorporates an easing bias, thereby accounting for the possibility of further cuts in policy rates. second, and most importantly, forward guidance is firmly anchored on the ecb ’ s mandate and monetary policy strategy. in particular, the path of the policy rates remains conditional on the outlook for inflation and will be reviewed over time within the analytical framework provided by the ecb ’ s monetary policy strategy. this analytical framework assesses both economic and monetary developments relevant for inflation. in particular, the conditionality of the forward guidance reflects the two - pillar strategy. that is : the medium - term outlook for inflation is evaluated in terms of economic analysis indicators confirming a broad - based weakness of real economy ; and it is evaluated on the basis of monetary analysis indicators confirming subdued monetary dynamics. third, forward guidance helps us to focus on our mandate, as it de - emphasises the policy relevance of any single data release and concentrates on the medium term. in other words, through our forward guidance we communicate one – and only one – expectation on how our key interest rates will evolve. it is this – and only this – communication that is relevant to assess our policy orientation. unless this communication changes, the policy orientation remains unchanged. has forward guidance achieved its objectives? it is probably too early to answer. but allow me a preliminary assessment. looking at money market conditions, a number of indicators give us comfort that, in the absence of forward guidance, money market rates would have displayed more upward volatility than was observed. first, the influence of shocks coming from outside the euro area has been dampened ( see slide