Wednesday, May 30, 2007

Eurointelligence Complete Guide to Central Bank Communication (amv)

Here some hints on good central bank communication from the perspective of those who have to make sense out of it:

"What constitutes good communication? Most non-economists would probably say that the quality of the communication depends on those who communicate. Some do it better than others. In fact, that sums almost everything up you will ever need to know about central bank communications, if it had not been for the awkward fact that economists, who usually dominate this debate, have discovered many more complicated and wrong answers to this question.

Whether you publishing minutes, as the Bank of England does, or whether you hold a press conference, as is the case with the ECB, is a matter of taste and tradition. We could not care less. What matters to us is whether we understand how the monetary policy process is working at the moment. At this particular time, the true intentions of the UK's monetary policy committee remain well hidden, while the ECB's view of the economy is relatively clear. It has not always been thus. And it will probably change again some time in the future. Central bankers are human beings too. This means that no single system is inherently superior, just as there is no perfect political system. The consensus is in favour of publishing minutes, and publishing votes - and that can be a fine strategy. The Constitutional Monarchy is also a fine system - though you may not necessarily want to recommend as the best system for every country in the world.

There is only one thing that matters in monetary policy communication - to give the public an idea of the monetary authority's analysis and range of views. Since the members of the committee are intelligent people, with an overproprotionate number of economists among them, the chances of disagreement are close to 100% on any day. So communication has to be able to bridge the gap the committee's consensus (or majority) analysis, and the range of views. Not easy this, under any system."