UNIVERSITÉ LIBRE DE BRUXELLES
Faculté des Sciences Sociales, Politiques et Économiques
Directeur: PETER PRAET
par
ANTON COMANESCU
Année académique 2009-2010
TO TALK OR NOT TO TALK?
Reflections on Central Bank Communication
From a Multi-Disciplinary Perspective
Acknowledgements
No human achievement is possible without inspiration. This research would have not existed without the inspiration insufflated by Professor Peter Praet, a master architect of the balance between intellectual endeavor and practical realizations. The ideas that form the backbone of this text came also from illuminating discussions in much unexpected circumstances with people whose minds shaped my economic weltanschauung: Gary Becker, Joseph Stiglitz, Daniel Kahneman, Alec Gallup. I am also grateful for fruitful discussions, guidance and critical observations to Bo Larsson, Paul De Grauwe, David-Jan Jansen, Stephen Cecchetti, Bernhard Winkler and to practitioners of central bank communication who showed me the dark side of the moon:
Regina Schüller from the ECB, Kristin Bosman from Banque Nationale de Belgique and Mirela Roman from the National Bank of Romania.
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TABLE OF CONTENTS TABLE OF CONTENTS TABLE OF CONTENTS TABLE OF CONTENTS
Introduction Introduction Introduction
Introduction...7
CHAPTER I CHAPTER I CHAPTER I CHAPTER I ---- CENTRAL BANKS A CENTRAL BANKS A CENTRAL BANKS AND ZEITGEIST CENTRAL BANKS AND ZEITGEISTND ZEITGEISTND ZEITGEIST...10
1. Confidence Ad Personam...11
2. Mystique as a Monetary Policy Tool...15
3. An Illuminist Revolution...19
CHAPTER II CHAPTER II CHAPTER II CHAPTER II ---- AN OVERVIEW OF LITERATURE AN OVERVIEW OF LITERATURE AN OVERVIEW OF LITERATURE AN OVERVIEW OF LITERATURE...24
1. ‘Supply-Side’ Communications...25
2. ‘Demand-Side’ Communications...32
3. Persuasion and Reputation...38
CHAPTER III CHAPTER III CHAPTER III CHAPTER III ---- THE SUPPLY OF CENTRAL BANK INFORMATION THE SUPPLY OF CENTRAL BANK INFORMATION THE SUPPLY OF CENTRAL BANK INFORMATION...46 THE SUPPLY OF CENTRAL BANK INFORMATION 1. Transparency Versus Secrecy...47
2. Toward a Behavioral Approach...56
3. Communication on Monetary Policy Objectives...64
4. A Unified Framework for Enhanced Communication...77
CHAPTER IV CHAPTER IV CHAPTER IV CHAPTER IV ---- THE DEMAND FOR CENTRAL BANK INFORMATIONTHE DEMAND FOR CENTRAL BANK INFORMATIONTHE DEMAND FOR CENTRAL BANK INFORMATION....90 THE DEMAND FOR CENTRAL BANK INFORMATION 1. Why Listen to the Central Bank?...91
2. Monetary Policy and the Media...97
3. Expectations and Learning...103
4. A Schematic Model of Supply and Demand...108
CHAPTER V CHAPTER V CHAPTER V CHAPTER V ---- HOW TO TALK IN TIMES OF CRISESHOW TO TALK IN TIMES OF CRISESHOW TO TALK IN TIMES OF CRISESHOW TO TALK IN TIMES OF CRISES...118
1. Theoretical Considerations...119
2. Some Empirical Evidence...123
3. Social-Psychology and Financial Crises...128
CHAPTER VI CHAPTER VI CHAPTER VI CHAPTER VI ---- THE SEMIOTICS OF THE EUROSTHE SEMIOTICS OF THE EUROSTHE SEMIOTICS OF THE EUROSYSTEMTHE SEMIOTICS OF THE EUROSYSTEMYSTEMYSTEM...148
1. The Functioning and Meaning of EMU...149
2. Bridging the Identity Gap...159
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3. A Euro Demos?...167
CHAPTER VII CHAPTER VII CHAPTER VII CHAPTER VII ---- THE CREDIBILITY OF ECB TALK THE CREDIBILITY OF ECB TALK THE CREDIBILITY OF ECB TALK THE CREDIBILITY OF ECB TALK...175
1. Three Lengthy Routes to Credibility...176
2. How the ECB Talks...191
Conclusions Conclusions Conclusions Conclusions...201
Bibliography Bibliography Bibliography Bibliography...209
List of Figures
Figure 1. Consistent and optimal equilibrium (Kydland and Prescott, 1977)...29Figure 2. Temptation and enforcement curves (Barro and Gordon, 1983)...31
Figure 3. Psychologists’ versus economists’ preferences (Rabin, 2002)...36
Figure 4. The triangle of central bank’s persuasion...40
Figure 5. Factors of transparency (Cruijsen and Eijffinger (2007)...48
Figure 6. The Transparency triangle of monetary policy (Winkler, 2000)...50
Figure 7. Impact of FOMC statements on interest rates (Woodford, 2005)...53
Figure 8. ECB’s discourse and policy stance...54
Figure 9. Topography of exchange interventions (Bernal and Gnabo, 2007)...54
Figure 10. Success of verbal interventions (Jansen and De Haan, 2005)...56
Figure 11. A conceptual framework for transparency (Eijffinger and Geraats, 2003)...66
Figure 12. A behavioral framework of central bank communication...88
Figure 13. Framing in the media (Baran and Davis, 2009)...100
Figure 14. Routes to belief, attitude and behavior change (Petty and Caccioppo, 1996)...101
Figure 15. Press coverage of ECB’s monetary policy...102
Figure 16. Actual versus perceived inflation (Döhring and Mordonu, 2007)...107
Figure 17. The positive correlation between communication and confidence...110
Figure 18. A schematic model of supply and demand for information...112
Figure 19. Movements along the information supply curve...114
Figure 20. Shift in the CBI demand schedule – The need for transparency...115
Figure 21. Shift in the CBI supply schedule – Optimizing CB secrecy...117
Figure 22. Communication factors in the EUR/RON Exchange rate...127
Figure 23. The inconsistency triangle of central bank communication...143
Figure 24. The decision making bodies of the Eurosystem...152
Figure 25. The ECB’s links with other EU institutions...158
Figure 26. The democratic pyramid (Beetham, 1955)...168
Figure 27. Modes of legitimation in the EU (Jachtenfuchs, Diez and Jung, 2000) ...170
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Figure 28. The areas of ECB independence...184
Figure 29. The system of credibility (Collignon, 1998)...189
Figure 30. Three Routes to Credibility ...190
Figure 31. Central bank transparency (Cruijsen, Eijffinger and Hoogduin, 2008) ...194
Figure 32. Average number of ticks per minute, press conference days versus...199
Figure 33. Average volume traded per minute, press conference days versus...199
List of Tables
Table 1. Comparative transparency index (Crowe and Meade, 2008)...49Table 2. Ranking the ECB independence (Cuckierman, 2001)...183
Table 3. Accountability criteria (Bini Smaghi and Gros, 2000)...188
Table 4. Transparency ratings of central banks (Goldman Sachs, 2000)...191
Table 5. ECB’s perceived transparency (Cruijsen and Eijffinger, 2007)...195
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Motivation
“Have you noticed how inexpressible is the individuality of one man, how difficult it is to know distinctly what distinguishes him, how he feels and lives, how differently his eyes see, his soul measures, his heart experiences, everything? What depth there is in the character of a single nation which, even after repeated and probing observation manages to evade the word that would capture it and render it recognizable enough for general comprehension and empathy. If this is so, how than can one survey an ocean of entire peoples, times and countries, comprehend them in one glance, one sentiment or one word, a weak incomplete silhouette of the world? A whole tableau vivant of manners, customs, necessities, particularities of earth and heaven must be added to it, or precede it; you must enter the spirit of a nation before you can share even one of its thoughts or deeds. You would indeed have to discover that single word which would contain everything that it is to express; else one simply reads - a word.”
JOHANN GOTTFRIED HERDER
