INTRODUCTION

The previous chapters have built the case for a view of central banks that recognizes the simultaneous role of institutional and economic factors on their performance in an historical context. In addition, the success of central bank policies will also be crucially dependent on how the central bank communicates its policies to the public. The importance of a greater public understanding of central bank policies is not new, as we have seen. However, the task of improving the quality and quantity of information disclosed in public has taken on greater urgency in recent years, in parallel with two other notable developments. They are: the clarification of the responsibilities of the monetary authority and the increase in accountability to governments and, by implication, to the public at large. It should be emphasized that accountability is not meant as an end run around the autonomy of the central bank. Instead, as we shall see, accountability cannot be entirely divorced from procedures to handle conflicts between the central bank and the government. As the Royal Commission of 1936 into the operations of the Bank of Canada fully recognized “… while the Bank should resist temporary gusts of public fancy, it must in the long-run show responsiveness to public opinion and be responsible to government” (Royal Commission 1936). Needless to say, finding the right balance of rights and responsibilities in this context is no easy matter.

Prior to the 1990s, there seems to have been little or no interest among academics or policy makers with the role of communication in the formation and validation of expectations formed by economic agents.