How Do Central Banks Talk? (Geneva Report on the World Economy) Book

Not long ago, secrecy was the byword in central banking circles. Now, the unmistakable trend is towards greater openness and transparency. Increasingly, the central banks of the world are trying to make themselves understood, rather than leaving their thinking shrouded in mystery. This report describes and evaluates some of the changes in how central banks talk to the markets, to the press, and to the public. It is both descriptive and prescriptive. The authors do not hesitate to offer their views on what has been done and what is left to do. The third title in the ICMB/CEPR series of Geneva Reports on the World Economy considers that a central bank is transparent when it provides at all times sufficient information for the public to understand the policy regime (what it is trying to achieve, how it goes about doing so, and its probable reactions to likely contingencies), to check whether the bank's actions match the regime, and to pass judgement on its performance. The case for transparency is very strong. It is based on both policy effectiveness and democratic accountability. The report argues that the burden of proof should be on those who would withhold information. There are valid reasons for secrecy but they are the exception, not the rule. As they talk, central banks need to spell out their long-run objectives and their methods. This includes at least the broad contours of their forecasts. Central banks should also provide indications about their tentative future plans. The way central banks ought to talk depends on the decision-making process. In particular, it matters whether policy committees are individualistic or collegial. With individualistic committees, transparency comes naturally as differences of opinion are inevitably aired in public, but it may be difficult to agree on common statements when explaining decisions. Collegial committees typically rely on carefully prepared statements or minutes but, in order to achieve transparency, they too need to fully reveal their reasoning and uncertainties. The report concludes with a review of the communications strategies of some of the main central banks.Read More