For instance, a recent ECB study has shown that, following the introduction of a quantitative definition of price stability, inflation persistence has considerably diminished in the euro area, in Switzerland and in five inflation-targeting countries. 2 While a large component of the switch in expectations formation is due to the genuine regime change, the exceptional speed of the adjustment would not have been possible without extensive communication about the onset of a new regime. Communication in difficult times Central bank communication – if supported by an established strategy – might well be a quiet and uneventful activity. In difficult times, however, when the economic outlook darkens exceptionally and confidence falters, communication becomes even more important to explain how the central bank intends to gear its policy. We have, on the one hand, the need to take and communicate swift action in implementing the appropriate monetary policy and in refinancing commercial banks. On the other hand, we need to communicate clearly the adherence of the central bank to the long-term objectives of policy and the way it intends to steer the policy course back to a normal path once the abnormal circumstances and risks have subsided. Communication in difficult times is inherently challenging for all central banks. However, it is facilitated by two fundamental components of the ECB’s monetary policy strategy. The first is the quantification of a price stability objective. This grants a very significant level of predictability.
For its part, the ECB has established a practise of making its policy transparent and in setting new benchmarks in the area of central banking communication. That being said, on each occasion, a central bank has to carefully assess the relevance, clarity and timeliness of the information. Transparency is a key ingredient of an effective monetary policy. Communication is an ongoing challenge and effective communication will always be characterised by a degree of flexibility and adaptability in order to respond swiftly to a rapidly changing economic environment. Thank you very much for your attention. BIS Review 160/2008  3