Why Should Central Banks Communicate with Public? “Exposuring the Frame” vs. “Never Explain, Never Excuse”

Abstract

The ability of a central bank to affect the economy depends on its ability to influence market expectations about the future path of financial indicators. Effective communication with the public increases the transparency of monetary policy. Increased transparency improves the public’s understanding and support of monetary policy and the democratic accountability of the central bank, serving to convergence to the rational expectations equilibrium. The paper suggests that, in order to be able to build stable monetary markets against financial crises, communication should be considered as an integral part of the modern day monetary policy.