The world’s top central banks have taken their fair share of criticism not only for adopting unconventional policies following the financial crisis but also for failing to explain the unorthodox measures they were taking in language that could be understood by the general public. It is clear they have learned the lesson from that.
Following are a couple of takeaways I made from watching the world’s leading policymakers discuss central bank communications at a recent all-star conference on this topic at the European Central Bank.
- Major central banks such as the Federal Reserve, ECB, Bank of England and Bank of Japan clearly understand that they need to be clearly understood to influence public expectations and remain credible. Code words and convoluted language have fallen out of fashion. Plain talk in simple language is the new trick of the trade.
- Despite the push for greater transparency and clarity in communications, policymakers — constantly faced with a wide array of economic uncertainties — are unlikely to provide the degree of certainty on the future policy path that markets have generally been longing for.
- To make complex forecast and policy messages accessible to the wider public, central banks increasingly tailor the content of their pronouncements to the requirements of each communication tool they are using, and to the audience watching that particular channel of communication. The BoE has dubbed this technique “layering”.
Below is a selection of key quotes from a policy panel debate — led by Bank of England’s Mark Carney, ECB’s Mario Draghi, Bank of Japan’s Haruhiko Kuroda, and Federal Reserve’s Janet Yellen — that I personally considered in any way interesting and inspiring:
Haruhiko Kuroda, Bank of Japan
“Communication is not a matter of technique … it is a matter of policy itself. From my experience in the last 4-1/2 years, the best communication policy is to explain in straight words the content and intent of your monetary policy which can be understood not just by monetary experts and economists, but also the general public.”
Janet Yellen, Federal Reserve
“We try not only to explain what changed about the economic outlook that justified (our policy action) but also the objectives we are trying to achieve. For the broader public, as opposed to market participants, the most important thing to know is what it is that we are trying to achieve?
They do want to know that we are committed to our 2 percent inflation objective, that we want to achieve our employment mandate. We will readjust these (policy) instruments as we think necessary in light of those policy goals, that’s are our commitment.
But I do think that market participants are looking for greater certainty about the policy path than central bankers believe is appropriate to offer most of the time.”
Mark Carney, Bank of England
“Look at what we put out: a 50-page Inflation Report, we still communicate in 15-page speeches with lots of charts, expert audiences read them, understand, digest, respond to them, that’s true, but that’s not the way to communicate with the general public. This is not a sustainable form of communicating in a world that has had enough of experts, it is also not consistent with how people access information.
(To make information accessible), you have to change the content. What we have tried to do … is to layer the content, so you have a very simple message that is tweet-able, that can go out on whatever decision is made… and to take a 50-page Inflation Report and reduce it down to a relatively simple narrative with icons, key charts that explain why we did what we did, and then to use multiple channels in order for that to get out.
In order to be as effective as possible on speaking with the broader public and actually ultimately getting to a dialog as opposed to a monolog with them, we need different channels, we need different content, but we need that change within the institution, and you only get that if you open it up to a broader number of people that just those at the top.”