BNP - Central Bank Watch: Learning to mumble with greater coherence

Key Points:
►  Beliefs about the future conduct of monetary policy matter: they influence asset prices today and therefore the prospects of the central bank achieving its mandate in the future. However, the conduct of monetary policy is not well understood by market participants so there is a role for central bank communication to nudge those beliefs in the appropriate direction.

►  Central banks have taken great strides in developing their communication strategies in recent decades towards a more transparent and comprehensive description of the policy debate but that process is not yet complete. We propose that policymakers publish an optimal plan, describing how they expect to adjust the policy stance in the future given their current assessment of the economy, which is placed within a fan chart to emphasise the uncertainty around that plan.