Regularly canvassing the views of the public, on the economy and on the setting of monetary policy, would be one way of harnessing that wisdom. This would allow central banks to listen to a potentially much wider and richer array of views on the setting of policy, in particular from those who might otherwise be distant, disenfranchised or distrustful of central banks and their actions. It would open central banks’ ears (and eyebrows) to a wider range of societal stakeholders when setting policy. The information provided from the public could serve as another input to the policy-setting process, much as monetary policy rules (and other data) do today. What are the public telling us about the right setting of policy and why? Clearly, neither rules nor polls should be followed slavishly - the scope for misinformation and mishap is simply too great. And the whole purpose of delegating policy to an independent third-party is to avoid the short-termism that may sometimes affect the general public. Nonetheless, if crowds, like rules, sometimes contain wisdom – different perspectives, different views, different narratives – then harvesting this information could be an important additional input into the policy 79 80 81  Earle et al (2016). Mackay (1841). Tetlock and Gardner (2016). 26  All speeches are available online at www.bankofengland.co.uk/speeches  26  process. It would help reach, and solicit direct feedback from, those parts of society otherwise out of central banks’ reach. And it may, as a by-product, also improve public understanding of policy and the economy.
For instance, in one year the inflation rate of Slovenia and Austria may differ greatly due to changes in taxes or differences in the economic cycle, but the longterm price expectations of people still remain quite similar in these countries. This is logical. In the monetary union, it is natural that there occur differences in the inflation rate across regions, but these cannot last very long. Otherwise, the competitiveness of the country with the faster inflation rate will suffer: in the best case, the country’s economic growth will slow down gradually, but in the worst case the country will have to adjust through a difficult crisis similar to the situation in Greece. One way or another – eventually, this entails a decrease in demand and price growth will be forced back to its “correct” level. For us, not much has changed after joining the monetary union. Inflation in Estonia was affected by euro-area price stability already under the fixed exchange rate system. Though for a short while, Estonia’s inflation greatly exceeded that of Europe, long-term and excessive deviations were corrected by the economy. Otherwise, it would have started pressuring the credibility of the fixed exchange rate. While in the previous monetary system, more fretful analysts might have speculated that the economy would be adjusted through devaluation – the weakening of the currency’s value – which would have allowed inflation to remain higher, luckily this is not an option in the monetary union.