The number of website hits has increased markedly since publication of our first layered Inflation Report in November last year. Recently, we have tried to pinpoint more precisely the benefits of layered communication in boosting the public’s understanding and trust. This involved conducting a so-called “randomised control trial” on two groups – a group of experts (students studying economics at university) and a group of non-experts. 10  Both  groups were randomly split with some given layered, and others un-layered, Bank of England content from the Inflation Report. This enabled a direct assessment of the impact of layering on understanding and trust. It would have been a tad disappointing if layering had had no impact. And thank heavens for small mercies that, for both the expert and non-expert groups, layering boosted reported trust and understanding scores. What was more interesting was by how much layering seemed to help. In our sample, the boost to understanding of the economy and monetary policy that came from layering the Inflation Report was larger  8 9 10  Haldane and Turrell (2017). Haldane (2017b). Haldane and McMahon (forthcoming). 5  All speeches are available online at www.bankofengland.co.uk/speeches  5  than the boost to understanding that came from having studied for an advanced degree in economics. That’s a depressing statistic for those of us who have studied economics, but great news for everyone else. (b) Educational Programme A second strand of the Bank’s engagement strategy is education.
Weaker institutional and regulatory frameworks have added up to make these economies historically associated with increased cyclical vulnerabilities. The procyclicality of bank credit and debt-driven fiscal expansions, together with more rigid exchange rate regimes, contributed in the past to amplify external shocks, making exposure to changes in external financial conditions a relevant driver of overall economic activity. Because of these vulnerabilities, EMEs are often considered a risky-asset class. As such, investment flows pour into them when global conditions improve and risk-on is the mood in the market—be it through international banking linkages or direct portfolio flows. Domestic asset prices surge more vigorously in response to these flows due to limited financial market depth, strengthening the market value of firms’ collateral and further contributing to the buildup of vulnerabilities. Two factors have been especially critical in the past. First, the so called “original sin”, whereby EMEs—especially governments—fund themselves in foreign currency, creating foreign exchange (FX) mismatches in balance sheets of the government, banks, or corporations. Second, procyclical fiscal and monetary policies that amplify external shocks. In such cases, even a mild external shock can push economies to the brink of recession. ∗  I thank the comments and suggestions in preparing this note to Elías Albagli, Miguel Fuentes, and Carlos Medel. 1  In short, domestic weaknesses interact with global financial attitudes in a dangerous mix that has historically proven to be highly destabilizing for EMEs, compared to AEs.