Monetary Policy and Financial Stability: What Role for Central Bank Communication?

Conference organised by De Nederlandsche Bank (DNB), The European Central Bank (ECB), and The University of Groningen (RUG).
Date: 15-16 Nov 2010.
Location: De Nederlandsche Bank (DNB), Amsterdam

Conference Nov 2010
In response to the financial crisis of 2007-2009, a number of countries are currently reconsidering and changing the setup of their financial supervisory system. In a large number of countries, central banks will be given a more prominent role, in micro- and especially in macro-prudential supervision.

This development is, inter alia, based on the idea that combining financial supervision with monetary policy tasks can lead to synergies, e.g. through information gains, thereby possibly leading to a more effective conduct of monetary policy and/or to more effective crisis prevention and management. At the same time, such a development might entail risks for central banks. For instance, a supervisory role might at times lead to conflicts among different goals, and could entail a risk for the reputation of a central bank, which in turn might affect the effectiveness of its monetary policy conduct.

Conference Nov 2010
In order to minimise the risk of a reputational loss, central banks that are entrusted with supervisory tasks will need to carefully design their respective communication policies. The way the central bank communicates will also be particularly important in situations where conflicts among its different goals arise. The conference aimed to bring together academics and researchers at policy institutions to discuss ongoing research on these issues.

Questions to be addressed include, but are not limited to:

  • The role of central bank communication in the conduct of monetary policy and in ensuring financial stability. Is the role of communication in maintaining price stability and financial stability different? What should be communicated with respect to financial stability?  How should central banks communicate in the presence of conflicts among different goals? 
  • What is the role of Financial Stability Reports (FSRs) in maintaining financial stability? How have FSRs evolved over time? Is the information content of FSRs different across central banks and if so, what explains these differences? What role do FSRs play in central bank communication?
  • Analyses of the reputational risk that is entailed, e.g. by studying the determinants of central bank reputation, its evolution over time (and in particular during crisis episodes), the effect of reputation on central bank performance, and the degree to which reputation and its effects depend on the central bank having supervisory functions.
  • The extent to which communication effects and reputation risks differ depending on the form and extent of the financial stability mandate of the central bank.

Conference Nov 2010
The conference also contained a panel discussion on the relevant issues. Panel speakers were Sylvester Eijffinger (University of Tilburg), Lars Nyberg (Swedish Riksbank) and Donato Masciandaro (Bocconi University).