Central Bank Communications: From Mystery to Transparency. Five Key Issues of Central Bank Communications with the Public

Last week, the National Bank of Ukraine and Narodowy Bank Polski convened the annual research conference Central Bank Communications: From Mystery to Transparency, having gathered central bank representatives from over 30 countries – namely, from Europe, the United States, Canada, Latin America, Asia, and Africa. Around 400 people participated in the conference, which was organized with support from the Canada-IMF Technical Assistance Project NBU Institutional Capacity Building, the Kyiv School of Economics, and the Journal of Monetary Economics. Apart from central bankers, the event was attended by representatives of international organizations, leading researchers from prominent universities of Europe and the United States, and Ukrainian and global experts. The conference focused on global trends in transparency that were causing concern among central banks and their stakeholders. Five most important issues are summed up below.

Why should a central bank be independent and what is the role of its openness?

Deputy Governor of the Riksbank Cecilia Skingsley gave a keynote speech on central bank openness.

"There is a clear connection between a central bank’s ability to communicate and its ability to maintain its independence. The global practice shows that independent central banks are more effective in implementing their mandate – ensuring price stability and preventing financial turmoil – compared to regulators influenced by politicians," noted Ms Skingsley.

Therefore, she reckoned central banks should quickly adapt to new technologies and change their communications. Only then will the public trust their decisions and forecasts.

What is the role of communications in the fight against populism?

A central bank must respond to any criticism coming from members of parliament. This opinion was expressed by Emma Murphy, head of the Content and Strategy Division, Communications, the Bank of England. Members of parliament are elected representatives of the public, so keeping silence may be harmful.

Yuriy Gorodnichenko, professor at the University of California, is confident a central bank needs to gain reputation in order to stand up to politicians.

"The only thing that will ensure a central bank’s independence and resilience to political pressures is public confidence. Citizens should recognize value in a central bank’s independence. But how do you build that trust if the public has no understanding of what the regulator does and what are its instruments, goals, and limitations? Central banks should focus on persuading the public, not the parliament. If a central bank has strong reputation and enjoys public trust, it will be able to avoid any confrontations," noted Mr Gorodnichenko.

How can a central bank gain public trust?

The Czech National Bank's ex-governor Miroslav Singer said that one of the lessons learnt by the Czech regulator was that a central bank should not rely too much on journalists in communicating with the general public.

"Our mistake was not to explain our decisions, expecting journalists to do it for us. However, in 1995–2013, the average salary in the Czech mass media was significantly below the average salary across the country. This affected the quality of journalists’ work. So we stepped up our own communications, introduced new tools to disseminate information, and launched a blog. Journalists started to simply copy our messages," shared Mr Singer.

The world of communications has completely changed, and a real revolution has taken place in the past few years, according to Christine Graeff, the Director General for Communications at the European Central Bank. The news cycle, the rate of appearance and consumption of communications, and communication channels have changed. Social media are just one example of the changes.

"At the Bank of England, we are striving for the maximum use of plain language, increasing our usage of infographics and videos, and engaging in social media," noted Emma Murphy. She also added that the audience needs to be divided into segments in order to improve the understanding of a central bank’s role. A single one-size-fits-all message cannot reach everybody in a country populated by dozens of millions people.

At the same time, the public’s understanding of a central bank is not the only goal of the regulator, according to Miroslav Singer. "We live in the times, when understanding by the public is not as important as its emotions. Central banks are institutions that people usually hate. It is a challenge a central bank must learn to respond to," emphasized the former governor of the Czech National Bank.

Are there any limits to central bank openness?

Central banks are not naive. They fully understand that there is no chance to convey all information about the regulator's work to the public. This opinion was put forward by Piotr Szpunar, director of the Economic Analysis Department at Narodowy Bank Polski.

However, representatives of central banks believe there is no need in this.

"A lot of information is neither interesting nor useful for the public," says Emma Murphy from the Bank of England. "But central banks must be transparent in the key aspects of their policies."

ECB’s Director General for Communications Christine Graeff expressed her confidence that the approach “the more communications, the better” does not work for central banks. "More communications equal more information noise. Eventually, the public loses focus and the central bank has a hard time spreading its messages," said Ms Graeff. She stressed that transparency should be effective.

Is the way to central bank transparency irreversible?

In order to better influence expectations of the market and the public, central banks should communicate not only their current decisions but also potential subsequent changes in their policy (which is known as forward guidance), believes Vitas Vasiliauskas, the Chairman of the Board of the Bank of Lithuania.

"Today markets and the public are used to receiving a certain volume of information. A decline in communication volumes might be perceived as a negative signal. The market would react, and trust in the central bank might decrease. Therefore, it is important that central banks continue to share future trajectories of their policies," reckons Mr Vasiliauskas.

Key Educational Events for the Academic Community Held within the Framework of the Conference

A series of educational events has been held as part of the conference and Ukraine Economy Week.

First, central bankers, economists from European and U.S. regulators, and scientists from world's leading universities gave lectures for Ukrainian students.

• Chairman of the Board of the Bank of Lithuania Vitas Vasiliauskas delivered the lecture Central Bank Communications: Do We Live in a New Era? to students of the Faculty of Economics of the National University of Kyiv-Mohyla Academy.
• Economist of the Federal Reserve Bank of New York Fernando Duarte met students of the Faculty of Economics of Taras Shevchenko National University of Kyiv and gave the lecture Financial Vulnerability and Monetary Policy.
• Eryk Walczak, a data scientist at the Bank of England, spoke about Data Science at the Bank of England to students of the Faculty of Mechanics and Mathematics at Taras Shevchenko National University of Kyiv.
• Professor of Economics at the University of Oxford Michael McMahon delivered the lecture The Economic Effect of Central Bank Communications: What Do Big Data Hide? to students of the Kyiv School of Economics.
• Economist and researcher at the Banque de France Klodiana Istrefi gave a lecture on Special Aspects in Taking Decisions by the U.S. Monetary Committee to students of the Kyiv School of Economics.
• Michael Weber, an Assistant Professor at the University of Chicago Booth School of Business, spoke to students of Vadym Hetman Kyiv National Economic University on Monetary Policy Communications and Their Influence on Inflation Expectations.
• Assistant Professor of Economics at Haverford College Carola Binder delivered the lecture Using Surveys to Study Household Economic Expectations to students of the Institute of International Relations of Taras Shevchenko National University of Kyiv.

Second, economists of the IMF and central banks of France and Finland held open research seminars at the NBU.

• Economist and researcher at the Banque de France Klodiana Istrefi presented a study on how political preferences of Federal Open Market Committee members influence the monetary policy conducted by the Fed. Video.
• IMF Senior Economist Etibar Jafarov presented a research on how confidence in a central bank governs its response to considerable terms-of-trade shocks in Latin American countries. Video.
• Head of Communications at the Bank of Finland Elisa Newby and Head of the Bank of Finland Institute for Economies in Transition Iikka Korhonen presented their research on how European central banks use Twitter to ensure financial stability. Video.

In addition, as part of the Annual Research Conference and Ukraine Economy Week, the NBU and the Kyiv School of Economics held a Career Breakfast for 30 students of leading universities of Kyiv.