Thursday, March 24, 2011


Ben Bernanke will be meeting the press, the Fed announced:
Chairman Ben S. Bernanke will hold press briefings four times per year to present the Federal Open Market Committee's current economic projections and to provide additional context for the FOMC's policy decisions.

In 2011, the Chairman's press briefings will be held at 2:15 p.m. following FOMC decisions scheduled on April 27, June 22 and November 2. The briefings will be broadcast live on the Federal Reserve's website. For these meetings, the FOMC statement is expected to be released at around 12:30 p.m., one hour and forty-five minutes earlier than for other FOMC meetings.

The introduction of regular press briefings is intended to further enhance the clarity and timeliness of the Federal Reserve's monetary policy communication. The Federal Reserve will continue to review its communications practices in the interest of ensuring accountability and increasing public understanding. 
Wow.  It wasn't too long ago that I remember watching one of Bank of England Governor Mervyn King's press conferences and thinking "that will never happen here."

This is another step that follows from a significant evolution in what is seen as good practice by central banks.  The Fed and other central banks once believed in the importance of using secrecy to cultivate a mystique.  It was not for nothing that William Grieder titled his 1987 classic about the Fed "Secrets of the Temple."  The Fed only began announcing changes in its policy stance in 1994, announcements of explicit Fed Funds rate targets followed in 1995.

This trend towards openness partly reflects the influence of academic views, as modern macroeconomic models assign important roles to expectations, information and credibility (which can be cultivated by making policy announcements and then sticking to them).  Its not surprising to see Bernanke pushing in this direction, given his background as a prominent academic economist (in contrast to his predecessor).  The previous procedural step in this direction was in November 2007, when Bernanke instituted the practice of having the FOMC members release their forecasts.  Bernanke also appeared on 60 minutes last December, which would have been unthinkable to the previous generation of central bankers.

Update: Real Time Economics has reaction from some Fed watchers and a chronology of the Fed's increasing openness.


The Arthurian said...

That's all very nice, Bill. But it's not like having a solution to the economic problem, is it?

Don't get me wrong. I have far more respect for the economic prowess of the Fed than I do for the economic prowess of Congress. I think the Fed is left to pick up the pieces after Congress does what it thinks best. (I'm not talking about the level of spending. I'm talking about the skewing of economic forces.)

You write: "...modern macroeconomic models assign important roles to expectations, information and credibility..."

Those would be the same models that could not foresee the financial crisis?

p.s. You have some interesting links and some interesting posts. I don't mean to be rude; I mean to be interesting, too. I will rely on your judgment in these matters. If you delete me, I'll get the hint :)

Bill C said...


I'm certainly not trying to suggest this is the solution to all our problems (or that economists know what that would be - economics would be boring if we did!). The short-term practical significance is probably quite small, but its a big symbolic change.

A couple of longer-run impacts:
(1) By giving him an opportunity to "spin" the FOMC announcements, I think this increases Bernanke's power relative to the committee, This goes against the general trend of the Bernanke regime of increasing the relative importance of the committee relative to the chairman because he has encouraged more debate and been more tolerant of dissent than his predecessor (perhaps because he feels more secure because he has good academic credentials??). Anyhow, I like Bernanke, so I think its a good thing.

(2) I'm slightly worried about the possible impact on the practical independence of the Fed. If the Fed chairman comes to be seen as just another DC "talking head" perhaps the respect (awe?) for the Fed will be diminished. On the other hand, maybe the esteem of the Fed will be increased if it better explains its policies. Definitely makes the Chairman's personal communication skill more important!

As for the general value of following academic influence, well, I'm biased. But I must confess that I tell my students that the Bank of England as an exemplar of following academic ideas - at least since the 1997 act, which gave it formal independence, a legal mandate for price stability and inflation targeting. Additionally, governor King's press conferences represent a much higher degree of "transparancy" than we've gotten from the Fed (until today!). But the Bank of England isn't looking so good now, as it keeps missing its inflation target (which must make those press conferences awkward!).

The Arthurian said...

Transparency. It sounds so good. But when you look at it, there is nothing there.

You offer insights I would never think of, and you explain things in a way that I can understand. Thanks.

Bill C said...

Thanks for the kind words!