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‘Bank watchers’ show why Bank of Canada is taking communications into own hands

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“The way it’s typically worked is we communicate with markets, they interpret what we’ve done to the media, and then the media speaks to Canadians,” Macklem said in response to the question. “More recently, what you’ve seen at the Bank of Canada, and other central banks are doing the same thing, we are putting more focus on speaking directly to Canadians. That is something where we will need to redouble our efforts.”

Bay Street’s clique of professional bank watchers, a group that includes a couple of dozen analysts and journalists, ought to view this as something close to an existential threat. Whatever cachet we thought we had earned as interpreters of monetary policy arcana is in jeopardy because we too often botch the job. The Bank of Canada has figured out that it doesn’t need us.

In August, Macklem cited a paper by Olivier Coibion of the University of Texas at Austin and two co-authors that suggests newspapers do a poor job of instilling confidence in monetary policy.

Coibion, Yuriy Gorodnichenko of the University of California, Berkeley, and Michael Weber of the University of Chicago gathered a sample of some 20,000 participants to test inflation expectations. They showed a subset reporting on U.S. Federal Reserve decisions by USA Today and “determined that households found simple statements such as the Fed’s inflation outlook far more convincing than the newspaper stories.”

“Relying on the conventional media to diffuse their message to the public can be ineffective because many households no longer read newspapers and even if they do, individuals discount reports from the news media,” the authors said in their paper.

A central bank has to take such a finding seriously, because guiding inflation expectations is one of the ways central banks achieve price stability. Analysts and journalists also should take note, too. If the public discounts what we’re doing, it will be difficult to continue making a decent living doing it.

Financial Post

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