BoE’s Broadbent highlights perils of forward guidance
Deputy governor warns conditional guidance is often viewed as a promise to act in a certain way
Central banks can run into trouble if they try to be too predictable, Bank of England deputy governor Ben Broadbent said in a speech today (March 30).
Central banks have often used forward guidance on the path of interest rates as a means of responding to the zero lower bound. Broadbent acknowledged this “can be an advantage”, particularly where there is a risk of deflation.
But he noted the BoE has often had the words of senior officials incorrectly interpreted as a promise to act in a
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