How Do Central Banks Talk?

It's Good To Talk

This interview is with Charles Wyplosz, one of the authors of How Do Central Banks Talk?, the third in the series of Geneva Series on the world economy. James Morgan talks to him about the report, which evaluates recent changes in how central banks talk to the markets, to the press, and to the public, and assesses the the communications strategies of the major central banks.

Transparency in central banks. But what was wrong with secrecy? The Fed and Bundesbank controlled markets by springing surprises
Did central banks react after 11 September in a way that would have been different from the way they did before?
If disagreements among bank committee members are made public, cannot this threaten credibility, especially if the media support the minority?
Isn’t there a contradiction between the Fed’s lack of transparency and its enormous prestige and the poor reputation of the ECB, which is more open?

Listen to the whole interview (9 mins)

Listen to the individual questions below...

Questions and Answers

1. You call for still more transparency in central banks. But what was wrong with secrecy? The Fed and Bundesbank controlled markets by springing surprises	[James Morgan]
... Change in society…RBNZ and Bof E successes…discovery that transparency doesn’t hurt and can in fact help. ...	[Charles Wyplosz]

2. Up to the 1994 change in Greenspan’s approach it was thought markets had to be told what to do and surprise was needed. You now put predictability as the priority	[James Morgan]
Markets cannot be pushed easily by central banks… shape expectations by being open, readable…utterances taken on board immediately ...	[Charles Wyplosz]

3. Did central banks react after 11 September in a way that would have been different from the way they did before?	[James Morgan]
... Bad habits reappeared ... central banks lowered rates without fully revealing the reasons ... were afraid of stock markets collapse but talked about risk to growth ...	[Charles Wyplosz]

4. The report advocates publication of forecasts. Is there not a risk, if forecasts are wrong and bank has to backtrack?	[James Morgan]
On the contrary ... decisions rest on forecasts ... wrong forecasts, wrong decisions ... forecast errors are human … wrong reasoning is professional failure ... easier to say ‘we have to change our policy’ if there is a public forecasting error	[Charles Wyplosz]

5. If disagreements among bank committee members are made public, cannot this threaten credibility, especially if the media support the minority?	[James Morgan]
... Disagreements are inevitable ... monetary policy not a science ... intelligent debate needed…unanimity a fiction…sharing doubts builds up credibility ...	[Charles Wyplosz]

6. You are making the same rules for disparate systems. Hong Kong at one end, Fed at the other, therefore there should be different rules	[James Morgan]
No one best way of carrying out policy ... always diversity ... but central banks have to do the same things ... understand, forecast, analyse ... have to be public whatever the procedure ...	[Charles Wyplosz]

7. Isn’t there a contradiction between the Fed’s lack of transparency and its enormous prestige and the poor reputation of the ECB, which is more open?	[James Morgan]
... Puzzling ... Greenspan the superhero ... but at least no longer obfuscates ... ECB’s problem is the two pillars ....	[Charles Wyplosz]

8. What’s the next move for transparency?	[James Morgan]
... Fed chairman will be more open…and a change at ECB will mean end of two pillars…monthly press conferences will give way to better means of communication.	[Charles Wyplosz]

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