Quantitative or qualitative forward guidance: Does it matter?

Is publishing central bank projections of the policy rate a better way of managing market
expectations than with written statements, and does it lead to overreactions by markets?
To answer this, we use a quasi-experiment from the policy announcements of the
Reserve Bank of New Zealand (RBNZ). Every monetary policy decision by the RBNZ is
accompanied by a written statement about the state of the economy and the policy
outlook, but only every second decision is accompanied by a published interest rate
forecast. We exploit this difference in the information accompanying decisions to study
the relative influences of qualitative and quantitative forward guidance. We find that the
information releases have significant effects on asset prices regardless of the nature of
the communication (quantitative or qualitative). Announcements that include an interest
rate projection lead to very similar market reactions across the yield curve as
announcements that only include written statements. This control-treatment approach
suggests that earlier studies may overstate the effects of publishing interest rate
forecasts on market prices: it is not only the interest rate forecasts that markets react to,
as they seem to infer similar forward guidance from written statements. We interpret our
results as implying that central bank communication is important, but that the exact form
of that communication is less critical. Our results also suggest that market participants
understand the conditional nature of the RBNZ interest rate forecasts, and that concerns
that markets read these forecasts as binding promises are unwarranted.