Central Banks have often, and rightfully, been criticized for obscuring information to the financial markets. The Swedish Central Bank is no exception. Though, as the Swedish Central Bank has become increasingly independent steps have been taken to improve communication towards the market actors. In line with these ambitions the bank’s communication strategy was recently changed. The new strategy stipulates, among other things, that the economical situation should not be commented upon, in between the regular board meetings, by the members of the board unless there is an extraordinary event that needs to be addressed.

This new strategy is somewhat contradicting considering that one of the main objectives of the Central Bank is to create stability. The chosen communication strategy is actually counteracting on stability and instead amplifies volatility. A few points show the essence of the problem.

a) The members of the board should not, under normal circumstances, comment upon the current economical situation.
b) There will, every now and then, be events that have to be commented upon by the members of the board.
c) When such an aforementioned “communication intervention” (like in b) occurs it will at the same time also be a direct signal to the market actors that there is an extraordinary (negative (or positive)) situation of some kind.
d) Hence, if the market actors haven’t understood the significance of a certain situation then the Central Bank’s communication strategy will do the job, since their communication (when it finally occurs) will work as the final and decisive alarm signal to the market actors. In plain words; the market actors will soon learn (through basic Pavlovian conditioning) that when the bank communicates things are really bad.
d) Stability and predictability will not be the result of such a communication strategy, on the contrary. Especially in situations of enhanced turmoil on the financial markets.

Time to formulate a new strategy?

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