Forward guidance classification

Mike Woodford provided a classification scheme for forward guidance by a central bank last year. He divided communication into two parts, forecasts and commitments. 

The forecast, or Delphic guidance, would be the predictions that are produced by the Fed to describe where they think the economy is doing. For example, if the Fed argues that the economy is doing better, there is more likelihood that tapering will occur and rates will go up. The Fed would be providing forward guidance through its forecast for growth. The second type of communication is the form of commitment of what the Fed will do as policy. This would be a clear description of current policy and objectives and operating procedures. Forward guidance on QE would describe how the policy would work in order to reduce uncertainty.

If you form a simple rule, the commitment will tell you what is the reaction function, while the forecast will tell you where you are at with respect to the reaction function. Clearly, commitment communication is much  more important than anything that can be conveyed in a forecast. The fed has not shown any better ability at making forecasts than the private sector albeit knowing what the Fed is thinking right or wrong is valuable.

With Vice Chairman Yellen, the most important signs are those that are related to commitment or what is the policy that is to be expected. Here, we are seeing that policy will be the same as Chairman Bernanke. we can say that forward guidance currently is telling us that nothing with change.