Talking Numbers: Central Bank Communications on Monetary Policy and Financial Stability ⁄

During the last two decades, central banks have increasingly provided quantitative information about monetary policymaking, including their primary objective, macroeconomic prospects and to a lesser extent the decision-making process. Nevertheless, the recent financial turmoil shows there is room for improvement by concentrating more on conveying uncertainty and incorporating higher moments. This is illustrated by assessing measures of central bank credibility, with a special focus on the European Central Bank (ECB). It is shown that ECB credibility was at a historic low at the height of the financial crisis. More recently, the ECB appears to have conducted monetary policy by stealth through liquidity operations and its main policy rate no longer provides an appropriate measure of the monetary policy stance. Some other challenges related to financial stability are discussed, including the issue that communications may be harmful ex post but beneficial ex ante. As a result, it is important that central banks commit to regular information releases.