Forward guidance ‘escape clause' increases effectiveness, says Colombian paper

An ‘escape clause' for forward guidance – that is, a threshold at which a central bank deviates from its promised policy rate – is welfare improving as it allows monetary authorities "avoid cases in which the cost of reduced flexibility is too high", according to a new paper from the Colombian central bank.

The paper: Forward guidance with an escape clause: when half a promise is better than a full one, by Maria Lucia Florez-Jimenez and Julian A. Parra-Polania, describes the threshold as another