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The purpose of this article is to take a closer look at one of the most unconventional instruments of monetary policy which is the Forward Guidance. This instrument is increasingly more often adopted by central banks. What is more, it is also used by the European Central Bank which implemented this approach for the first time in 2013. The first part of the article will be focused on presenting a theoretical approach of forward guidance, while the following part will describe examples of implementation of this instrument by the European Central Bank as the new way of communication with the market. The example of forward guidance use by the European Central Bank covers the way of communication of future monetary policy regarding the interest rates. The data presented in this paper shows a positive effect of the forward guidance approach. This method of communication has brought a clearer view of monetary policy adopted by the European Central Bank. Moreover it limited some uncertainty showed by the market participants regarding the level of future interest rates. The positive effects of the forward guidance lead not only to the continuous but also widespread use of this approach by the European Central Bank.

Forward guidance as a tool of the European Central Bank’s monetary policy