1950s, as i remember it, was that market uncertainty created significant differences of opinion in the direction of the prices of short - term debt instruments. the result was a " thick market " of bids and asks that increased the degree of liquidity. more recently, in the 1980s, policymakers, myself included, were concerned that being too explicit about short - run targets would make such targets more difficult to change, impeding necessary adjustments to evolving market and economic conditions. not too many years ago, the world learned of decisions of the federal open market committee through minor variations in the minutia of daily open market operations - - that is, effectively through faint signals that only informed market professionals knew how to read with accuracy. true, over time, those signals became increasingly clear, so that in the end, market participants never missed a policy decision or read into our open market operations a policy action when there was none. as markets, experience, and the magnitude of outstanding financial instruments changed, the deadweight loss created by such uncertainty - - read : " risk " - - became increasingly evident, as did the value of transparency. simply put, financial markets work more efficiently when their participants do not have to waste effort inferring the stance of monetary policy from diffuse signals generated in the day - to - day implementation of policy. and being clear about that stance has not constrained our ability to adjust the stance of monetary policy in either direction. our current disclosure policy, one hopes, obviates such complexities. in recent years, we have achieved a far better balance, in my judgment, between transparency and effective monetary policy implementation than we thought appropriate in the past. accordingly, as you know, we moved to the immediate disclosure of our policy actions and, over time, to explaining our decision and our sense of future risks directly after each meeting. in addition, we now publish full transcripts of our meetings after five years. through these disclosures, together with congressional testimony, speeches by board governors and reserve bank presidents, and the publication of the system's sizable research output, we endeavor to keep the public well informed. we have gotten to our present degree of transparency through an incremental process, and our disclosure policy will continue to evolve. at each step, we need to review whether in our judgment this new degree of openness optimizes the federal reserve's ability to implement effective monetary policy in the context of maximum feasible disclosure. it is inherent in the complex and changeable nature

stability by attempting to fine tune the real - economy might result in a central bank remaining too accommodative for too long following a recession. there are numerous examples of policy recommendations that have proved to be wrong for this reason, and not just from the 1970s. this risk must be avoided. nothing should distract a central bank ’ s focus on preserving price stability. a central bank should strive to remain focused and be pre - emptive in its fight against inflation. how activist central banks can be is an issue where there seems to be quite a bit of disagreement so let me be more explicit by using the euro area as an example. let us take the first ten years of the euro area and look at real - time estimates of the output gap as published by the imf and by the european commission ( ec ). ( the information can conveniently be found on their websites. ) both organisations have suggested, virtually every spring since 1999, that the output gap for the year reported would be negative. if we compare these to recent retrospective estimates we observe a significant bias. the bias is mainly due to the fact that the experts are now more pessimistic about what potential output was in the euro area than they were in the past. this is not the experts ’ fault. we simply cannot know in real time. and this applies not only to the size of the output gap, but even to its sign. in comparing what the experts tell us now and what they were telling us then, in real time, the sign of the output gap is revealed to be incorrect in more than half of the years in the first decade of the euro area. consider the year 2006, the year before the financial turmoil began. according to the imf and the ec, the euro area operated below its potential that year with the gap being around minus 1 percent ( see figure 1 ). as late as 2008, the year 2006 was still being seen as one of wasted resources. but by 2009, with revised estimates, the experts were telling us that three years earlier, the euro area was overheated and output exceeded its potential by a significant amount. mismeasurement of the output gap can lead to errors not only in monetary policy – if and when central banks incorrectly rely on this information – but can also lead to mistakes in fiscal policy. in 2006 we had a fiscal deficit in the euro area as a whole. alarms about fiscal soundness should have sounded before the crisis. but the alarms would