TIMIRAOS said forward guidance is a central bank statement about actions it plans to take in the future or the circumstances under which it would take an action. He contrasted this with a reaction function — a mapping, exemplified by a Taylor rule — that does not require forecasts and does not itself indicate the future path of the economy or policy; rather it specifies how policy should respond to particular economic conditions, trade-offs or other factors.

2026-07-30

TIMIRAOS said forward guidance is a central bank statement about actions it plans to take in the future or the circumstances under which it would take an action. He contrasted this with a reaction function — a mapping, exemplified by a Taylor rule — that does not require forecasts and does not itself indicate the future path of the economy or policy; rather it specifies how policy should respond to particular economic conditions, trade-offs or other factors.