Wednesday 17 October 2012

36. Central Bank transparency

It used to be that central bankers were very secretive. It stemmed from their desire to be seen as infallible. Reputation of the Central Bank, so the thinking went, required that the bank was never wrong. The best way to make sure you are never wrong is to say nothing.

In recent years central banks became more transparent. The new thinking is that the best working market is a market that is well informed. Providing rationale behind policy decisions, and improving communication in general, is seen as an important tool of monetary policy (Professor Pierre Siklos of WLU has written on this issue extensively; you may want to take a course from him in the future).

Nowadays central banks publish reports which provide insights into their thinking. The also publish minutes from the meetings of the interest - setting body.

Another innovation is disclosing disagreement between the members of the policy - setting body. In the minutes of the October 4, 2012 meeting, the Bank of England reports that "There were some differences of view between members (my underline) about the outlook and the likelihood that further easing in policy would be required"

You can find the report here. The statement cited above is on p. 9.

The Federal Reserve Board held a meeting on the same day. Its report also mentions disagreement. It is more transparent than the Bank of England:it names members who voted for and who voted against.

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