Don't limit public talk as Dallas Fed argues

I disagree more than I agree with the conclusions of an Economic Letter published by the Federal Reserve Bank of Dallas on central bank communication and its need to overcome the public’s limited attention span.

Let's have a detailed look what that paper has to say:

It is critical that central bankers have the ability to communicate their monetary policy goals and intentions involving employment and price stability to the public. The task is complicated in an economy that includes many firms and households in an era of information overload.

This is something I can completely agree with. Communicating on complex matters such as monetary policy is quite a difficult task to accomplish.

Central banks, with the explosion of new media outlets, have more opportunities than ever to provide information, while the private sector must choose from the competing media sources. Thus, for a central bank to remain relevant, it must carefully ponder what to say and whether changes in the economic environment warrant the public’s attention.

Sure, central banks do need to spend time and effort to carefully craft their communication messages, and many of them actually do. Communication is an art, rather than science, and inevitably it takes some practice to learn the craft.

… the central bank should limit communication when both GDP and inflation are stable.

On this, I can't disagree more. Of course!

Not only because that notion is wrong, but also because it appears to be based on a false assumption that the public’s attention remains at an equal level no matter whether times are good or bad. This is a misunderstanding.

In my view, there is no need for the central bank to willingly limit communication when the times are good. To the contrary, the central bank should continue performing as usual even when things stabilise. The rest happens naturally. The media, and the public, logically turn their attention away from the central bank during good times, as monetary policy once again becomes boring. People tend to do so on their own, without any push from the central bank. The public attention, and the visibility and frequency of media reports on the central bank, naturally declines when the economy and inflation are stable. No need to artificially “limit communication”.

Central banks should consider attracting the public’s attention when it matters.

That would require central banks to step up, rather than curb, their communication efforts when conditions worsen. One can completely agree with this part of the conclusion.

What is much more problematic is the final part:

Moreover, a more effective communication strategy for the central bank could be to speak less often and make each speech count by delivering a more focused, cohesive and concise message.

There is no dispute that public messages presented by central banks need to be "focused, cohesive and concise" to enable effective communications. However, adopting a strategy to consciously “speak less often” is undesirable.

By opting to become artificially silent at a particular juncture, a central bank risks creating virtual media reality and fanning speculation that it has something to hide. The risk is that when it chooses to speak again, it creates news — about the mere fact that it is talking, rather than drawing attention to what it is talking about. That is actually the lesson learnt by some developing countries’ central banks in Central Asia and Africa, that withdrawing from the public arena to limit the potential for misinterpretation or miscommunication is ultimately counterproductive.

However inconvenient it is for science-driven researchers to accept, I don't think it is possible to prescribe scientific requirements for good communication. All it takes is to carefully craft messages and painstakingly design communication events, and — sometimes inevitably by trial and error — try to strike the right balance for the frequency and scope of communications at every given point in time.

No scientific, model formula can give an exact recipe for success. As in art, the outcome often depends on factors beyond one’s control. Communicators, as craftsmen, simply need to play it by ear.