ECB Monetary Policy in a Tight Spot – Can More “Forward Guidance” Help?

The European Central Bank’s monetary policy is in a tight spot. Economic developments in the euro area are so different that only few countries would be satisfied with any further reduction in the interest rate. This article discusses whether the ECB has any further scope in the context of its communication policy to further stabilise economic developments in the euro area, despite the existing zero interest rate limit. The focus is on so-called “forward guidance”, a special form of expectation management, which features statements by the monetary policy decision-making body with respect to the forecast duration of its current low interest rate policy.