Jean-Claude Trichet: The changing role of communication Introductory remarks by Mr Jean-Claude Trichet, President of the European Central Bank, at a dinner with members of the “Internationaler Club Frankfurter Wirtschaftsjournalisten”, Frankfurt am Main, 15 December 2008. *  *  *  Ladies and gentlemen, A very warm welcome to all of you and thank you very much for your invitation to this club evening. I am happy to see many familiar faces in the audience tonight. Communication is a very important issue for all times. Being here in Frankfurt I am thinking of the very profound remark by Goethe: “Niemand würde in Gesellschaften viel sprechen, wenn er sich bewuβt wäre, wie oft er die anderen missversteht“. Nevertheless let me be bold enough to share with you some thoughts on communication and central banks. Communication is a key element for central banks to enhance the effectiveness, predictability and credibility of their monetary policy decisions. It becomes even more important in difficult times, when the economic outlook darkens and confidence weakens. It seems to me that central banks have improved their communication significantly in good times – and also in bad times – while some years ago communication was almost seen as a breach of their professional code. Why this change? Why did central banks decide to become transparent? Prior to the 1990s, central banks were very much working on the assumption that monetary policy effectiveness is greatest when the central bank systematically surprises the markets.
This separation has been the critical factor behind the  BIS Review 160/2008  1  general decline in inflation that we have observed over the past decades. 1 But independence makes democratic accountability by the monetary authority all the more important. Many central banks have gone well beyond strict legal requirements in their pronouncements and communications than imposed by statutory accountability duties. The question is: Why? The reason rests on a simple though powerful insight: transparency renders monetary policy more effective. In a world in which policy-making by surprises has lost purpose, wide knowledge of the central bank’s preferences and objectives can only serve as a coordination device for private beliefs. Anchoring expectations around the objectives of policy help coordinate the reactions of economic behaviours to the macroeconomic shocks along the appropriate path of adjustment that the central bank wants the economy to follow. Many central banks have therefore started to communicate their firm commitment to a nominal anchor, through the announcement of a precise definition of price stability. In many cases, central banks have gone further and spelled out a more general monetary policy strategy, and the analytical framework that is used by policy makers to assess the risks to the achievement of the central bank’s objectives. A growing body of empirical evidence supports the assumption that transparent quantitative objectives and communication about the strategy reinforces monetary policy.