Can central banks talk too much?
Speech by Mr Hyun Song Shin, Economic Adviser and Head of Research of the BIS, at the ECB conference on "Communications challenges for policy effectiveness, accountability and reputation", Frankfurt, 14 November 2017.
Is it possible for central banks to talk too much? Central banks learn from market prices, and influence market prices to steer the economy. However, the signal value of market prices can become impaired when market participants place too much weight on central bank pronouncements and actions. One concrete example of the confounding of market signals is the behaviour of market-implied inflation expectations based on the inflation swaps market, where swap rates have begun to move in lockstep with nominal yields. Such instances remind us that communication is a two-way street that involves listening as well as talking. Listening with greater self-awareness of the central bank's outsized role in financial markets would give central banks space to take a more detached position and make better decisions.