The 22 th Annual Conference on Monetary and Exchange Rate Policy May 2012, Tehran, Iran

Transcription

1 The 22 th Annual Conference on Monetary and Exchange Rate Policy May 2012, Tehran, Iran CENTRAL BANK TRANSPARENCY AND MONETARY POLICY EFFECTIVENESS Monetary tools in a New Era ANTON COMANESCU Economist, NATIONAL BANK OF ROMANIA Professor, CITY UNIVERSITY OF SEATTLE Introduction The paper concentrates on: conditions, contingencies and determinants of central bank transparency and communication the case of inflation targeting there is no best practice or an optimal communication policy communication remains one of the greatest challenges for every central banker cultural and national differences are paramount for choosing the best practice 1

2 A Historical Perspective The Early Ages At the Bank of England during the Great Depression, Deputy Governor at the time, Sir Ernest Harvey, speaking to the Committee on Finance and Industry in 1931, as he was answering questions of a Committee member named Keynes: Keynes: "Is it a practice of the Bank of England never to explain what its policy is?" Harvey: "Well, I think it has been our practice to leave our actions to explain our policy." Keynes: "Or the reasons for its policy?" Harvey: "It is a dangerous thing to start to give reasons." Keynes: "Or to defend itself against criticism?" Harvey: "As regards criticism, I am afraid, though the Committee may not all agree, we do not admit there is need for defence; to defend ourselves is somewhat akin to a person starting to defend her virtue." 2

3 The Middle Ages : Richard Lambert, an external member of the Bank of England s Monetary Policy Committee and former journalist, admits that during his time as a press officer at the bank, his job was explicitly to keep the Bank out of the press, and the press out of the Bank. Modern Times : Openness is more than just useful in shaping better economic performance. Openness is an obligation of a central bank in a free and democratic society. Alan Greenspan,

4 Post-Modernism : No-one would dare say that they were against transparency (...): It would be like saying you were against motherhood or apple pie. Joseph Stiglitz Transmodernism? A. End of history, Fukuyama style. B. Back to Omerta C. Talk, but measure your words: Morris & Shin (2002), Angeletos & Werning (2004), Metz (2003), Borio & Lowe (2002), Amato & Shin (2006) Gerrats, Eijffinger & Cruijsen (2006), Mishkin (2004) Cruijsen, Eijffinger & Hoogduin (2008) OR 4

5 New Era - The problem is not too much transparency - In fact, transparency is just half the story - The other half is the eye of the beholder - How many people read the annual report? Words, words, words. Shakespeare, HAMLET. A few inovative ideas - Borrow tools from political communication - More leadership is needed (see Gnaeus Pompeius) - Monetary policy information is not intrinsically newsworthy - Go beyond the intra murros segment of communication - Framing: When elites provide useful frames, citizens may be more likely to see the connection between what they care about and what politics offers and so may be more likely do develop real opinions Sears and Huddy (2003) 5

6 Honesty Clarity (external communication) Information efficiency (internal communication) Figure 1. The Transparency triangle of monetary policy (Winkler, 2000) Figure 2. Topography of exchange interventions (Bernal and Gnabo, 2007) - Diagnostic propensities / choice propensities - Sleeper effect impact of messages from trustworthy/untrustworthy sources - Create a context of influence through representational discourse - Catching-up the inattentive citizens on otherwise available information - Create a demand for CB information 6

7 Figure 3. Factors of transparency (Cruijsen and Eijffinger (2007) Figure 4. ECB s discourse and policy stance The main factors for the propensity to listen: Degree of financialisation of the economy Level of public s trust in the central bank General credibility of the institutional establishment Knowledge and interest that the average citizen has about the economy (knowledge gap, information asymmetries) Access to particular media (web content, financial news programs etc.) Development of alternative sources of financial information (CNBC) External factors that might create a sense of ineluctable dynamics in the economy Special circumstances (periods of financial turbulence etc.). 7

8 The main factors for the propensity to communicate: Normative environment prescribing rules of communication and disclosure (annual reports, press conferences, testimonies to the parliament etc.) Central bank independence and legitimacy Type of committee and decision making process in the bank Character of the country s tradition in dealing with the citizen Personal abilities of bank executives to communicate Role of the media (implication, cultivation) Special circumstances (change of currency, e.g. denomination ) Some problems - Many people drifting away from politics means they avoid news programming - Knowledge gap - Inflation targeting proves a rather weak system - Also questions about central bank independence - Different impact in different media systems (Curran, 2009) - Edelman s category errors: definitions of issues that produce systematic misunderstandings of problems and dysfunctional policy results - Competition pushes newspapers to cater the prejudices of their readers crisis is good news (Mullainathan & Schleifer, 2005) 8

9 Possible solutions - The central bank has to become more visible for the average citizen - Educating the public is crucial (see the DNB) - Impact assessment for communication (surveys) - Closing the gap with the public 9