MPC communication: the case for taking back control of financial conditions

This is a preview from the Quarterly UK Economic Outlook, May 2021.

Expectations about the decisions that central banks will take in the future matter. Any change in the level of the short-term policy rate or the stock of asset purchases will have a negligible impact on asset prices and ultimately inflation if investors expect that change to be soon reversed.  Central bankers have become more comfortable talking about the future path of policy in order to anchor those expectations.  Nonetheless, the current conversation about the future path of policy in the United Kingdom still falls a long way short of ‘complete forward guidance’ (Barwell and Chadha, 2013).

The analysis in this Box has been prepared by Richard Barwell, NIESR Fellow and Head of Macro Research at BNP Paribas Asset Management.

Please see the full analysis and its findings in the pdf document.