Central Banking and Communication As a Function of Circumstance

Abstract

This chapter draws attention to the reasons why central banking needed to refer to circumstances. Circumstances draw our attention to the importance of linking a view based on models to the context and circumstances. The so-called embraced common model in fact reflects the new wisdom of central banking, since it relies on observation and recognition of changing circumstances. There are at least two main branches wherein the term circumstance can be referred to. Circumstance can be defined with respect to the different monetary policy regimes to which a central bank is committed, and to the mandate. A commitment to a mandate also implies that a central bank acts as an institution.

Central banks generally appear to have embraced a common model of the channel through which monetary policy functions, although the specifics and emphasis given to those channels vary according to our particular circumstances. All banks ease when economic conditions ease and tighten when economic conditions tighten, even if in differing degrees, regardless of whether they are guided by formal or informal inflation targets.

Greenspan 2004, 39