(2007): Overborrowing and Undersaving: Lessons and Policy Implications from Research in Behavioral Economics, Discussion Paper, Federal Reserve Bank of Boston; Heidhues P. et al. (2010): Exploiting Naivete about Self-Control in the Credit Market, American Economic Review 100; Laibson D. et al. (2000): A Debt Puzzle, NBER Paper No. 7879; Meier, Sprenger (2008): Charging Myopically Ahead: Evidence on PresentBiased Preferences and Credit Card Borrowing; Azfar O. (1999): Rationalizing hyperbolic discounting, Journal of Economic Behavior and Organization, Vol. 38. 9  Hume, D. (1739), A treatise of human nature. 4  BIS central bankers’ speeches  encouraging sign, as it shows that deleveraging is not always inconsistent with economic growth. Turning to the indebtedness of households, the diagnosis does not point to easy solutions. Thus, regulatory measures at the microprudential level that enforce stronger discipline on the supply side of credit are all-important. Complementary macro-measures aimed at preventing excessive exuberance should also be deployed. In this context, I am referring to interest rate policies which – whenever feasible – “lean against the wind”, but also to more targeted macroprudential measures which directly address the dynamics of the credit market. The countercyclical capital buffer is an important example. Besides, facing more directly the behavioural biases that are at the root of the problem requires an increased level of “awareness”. In the words of Shefrin (2012), raising people’s awareness means “reminding ourselves of our psychological fallibilities so that we can avert some crises and mitigate others”.10 More specific consumer protection regulations or system design measures come as a second step.

First, given that monetary policy relies on, and influences market signals, the circularity between monetary policy and market reactions may amplify a bad signal.11 Increased transparency in the central bank’s policy rule may fuel this circularity, and destabilise the macroeconomy.12 Second, too much information from the central bank may result in conflicting signals about the policy path, a situation Blinder (2007) refers to as a “cacophony of voices” that may increase uncertainty for private agents. Market participants are also more likely to react to exogenous disturbances in such a scenario, further heightening uncertainty.13 Third, more transparency may not help to align market expectations if the additional information lacks credibility. Central bank forecasts of longer-term interest rates have been found to have little effect on market expectations, suggesting that uncertainty about future developments reduces the credibility of longer-term forecasts.14  3. CURRENT MONETARY POLICY COMMUNICATION CHALLENGES  Let me sum up with some comments on monetary policy communications in the current conjuncture. Central banks, in deciding on the appropriate approach and calibration to transparency, must take into account the greater complexity of the operating environment confronting monetary policy. These are well known and I will just highlight three: Policy rates near the zero lower bound and the turn to various unconventional monetary policy tools. The reality of multiple objectives and instruments, straddling the price and financial stability mandate of the central bank. The challenges to monetary policy independence amongst open economies, in the context of global financial cycles and spillovers arising from overtaxing monetary policy.