Forward Guidance as optimal monetary policy

Abstract

In the wake of the global financial crisis of 2008, central banks worldwide embarked on a journey of unconventional monetary policy measures to stimulate economic recovery. One prominent feature of this era has been the persistent lowering of interest rates to what economists refer to as the effective lower bound. As central banks approached this boundary, the efficacy of traditional monetary policy tools came into question, leading to a surge in academic research exploring alternative strategies for conducting monetary policy in such circumstances.