All economists agree that more information is better than less. When people are better informed, they make better decisions, enhancing the efficiency of the economy in allocating resources and improving overall welfare. It would be difficult to find an area of economic life where this line of argument has carried more weight than it has in central banking circles in recent years.
The job of central bankers is to conduct monetary policy in order to promote price stability, stable growth, and a stable financial system. They do this in an environment fraught with unavoidable uncertainties. But in conducting policy, there is one uncertainty that policy makers can reduce: the uncertainty they themselves create. Everyone agrees that monetary policy makers should do their best to minimize the noise their actions add to the environment. The essence of good, transparent policy is that the economy and the markets respond to the data, not to the policy makers.
The result of this is that today we have the nearly universal and immediate public broadcast of all interest rate changes. As everyone in financial markets around the world knows, the Federal Reserve*s Federal Open Market Committee now makes a public statement at 2:15pm Eastern U.S. time following each meeting. But the first public announcement of a move in the Federal Funds rate target was on February 4, 1994, and the regular issuance of a statement became an official feature of the FOMC*s procedures on January 19, 2000. Before that, it was customary for FOMC policy changes to be communicated to market participants through actions rather than words.
There are still people who argue for the efficacy of central bank secrecy in various forms, claiming that surprises are more effective and that even accurate information can be misinterpreted resulting in undesirable financial market volatility. We think that it is fair to say that these arguments have not been persuasive, and that the advocates of policy transparency have won the day. We have been reduced to arguments about the mechanics and exact timing of information release. Should the minutes of a meeting be released as soon as physically possible following the meeting, as done by the Bank of England*s Monetary Policy Committee, or should there be a modest delay until just after the following meeting, the FOMC*s practice, or is it acceptable to wait for years, as the European Central Bank is planning to do? Is it necessary or advisable for the head of the interest rate setting body to hold regularly scheduled news conferences? Should the policymakers be required to appear before legislative bodies to provide descriptions of their decision0making processes and justifications for their actions? How public should the inputs 0 forecasts, models, and anecdotes 0 into interest rate decisions be? All of these questions concern minor issues about the availability of information.
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Central Bank Structure, Policy Efficiency and Macroeconomic Performance
