With nominal interest rates close to zero, forward guidance in the form of a time-based conditional commitment to keep interest rates low for longer can be successful in mitigating downside risks to price stability, an ECB research paper shows.

Risks to price stability, the zero lower bound and forward guidance – a real-time assessment by Günter Coenen and Anders Warne, also finds, however, that the provision of time-based forward guidance may give rise to upside risks over the medium term if