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Central banks have needed to rely on language to shape expectations and communicate that their reaction functions have shifted in particular ways.
A central bank’s decision-making is embedded in changing contexts and uncertainty and it is for this reason that a central bank does not act on a basis of linear mechanisms or predefined fixed rules independently of changing contexts.
The demand that a central bank should be understandable to the public and that its actions should be comprehensible, and thus explaining its own actions, is actually not a new phenomenon (see Blinder 1996, Blinder et al. 2001). This paper proposes the central thesis that transparency, accountability, and comprehensibility are connected through the communicative interactions, hence the use of different modes of language. This thesis has at least two implications:
First, a central bank’s action and decision-making are always a communicative interaction with agents or institutions of markets, which themselves impacts upon a central bank’s environment and have repercussions for the central bank itself.
Second a central bank’s decision-making and language interaction go beyond the mastery of purely financial-economic calculus because they are part of, and socially embedded in, the bank’s environment. They are in fact major criteria for the market’s judgment about the central bank’s decision-making and communication practices.
The paper proceeds as follows: first, I provide an exegesis of Keynes’s institutional framework regarding central banks, based on his view that the “money management” of the economy cannot be based on rule…


Research on transparency, accountability and communication of central banks has flourished over the past decades. Modern central bank theory has abandoned the assumption of the speechless black box mechanism. Since central banks have turned their back on “monetary mystique and secrecy” (Goodfriend, 1986), they have started to develop a variety of communication strategies and methods for explaining their policies to the public: press conferences, minutes, publications, other media, spoken and written interaction. This desirable move towards greater transparency, communication and accountability has initiated considerable research and literature. A significant and increasing comments has found, for instance, that the Federal Reserve’s and the European Central Bank’s roads to transparency, accountability and communication have increased the comprehensibility and effectiveness of their monetary policies. This paper puts forward the view that this welcome development towards greater transparency, communication and accountability is in line with Keynes’s innovative thinking articulated many decades ago. It emphasizes that any attempt at guiding market expectations by an unconditional communication strategy implies a risk of disappointing market actors in situations where a central bank has to change its policy in response to changing contexts.
JEL codes: E43, E52, E58

  • Keynes
  • Monetary Economics
  • Central Bank Communication
  • Expectations
Elke Muchlinski [1]
  • [1]
    Berlin School of Economics and Law. Email: I thank my anonymous referees for their instructive observations. I also thank Gerard C. Rowe (Viadrina European University, Frankfurt Oder) for his comments on the final version of this manuscript.
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