Central Bank Communication Policy And Monetary Policy

Communication is an integral part of modern monetary policy. Central banks have placed growing emphasis during the past decade on greater transparency by expanding the modes of communication and the amount of information revealed to the public. Three factors have been particularly responsible for this development. First, greater independence granted too many central banks has been accompanied by a need for increased accountability. In general, greater accountability has meant an increase in communication with the public regarding the beliefs of policy-makers and the operations of monetary policy. Second, many industrialized and emerging market countries have adopted inflation targeting since its introduction by New Zealand in 1990. While the specific structure of these regimes has differed across countries, in all cases the adoption of formal inflation targets has placed unprecedented emphasis on the communication practices of central banks. Third, financial markets have grown in importance in many countries. Market prices are driven by the expectations of market participants. Shaping and managing market expectations is thus an important part of monetary policy. This is a task that would be impossible without an effective channel of communication with market participants.Therefore, this paper starts off with some general reasons and then moves to discuss questions of communication and transparency in relation to a central bank. To what extent does a central bank have to be transparent to fulfill the accountability requirements of public and market? What is the impact of communication and transparent on monetary policy efficiency and, hence, on monetary policy objectives? Finally, what are the implications for the communication strategies of the People's Bank of China?Chapter 1 introduces the rising background and reasons why central...