mugur isarescu : central bank communication as a policy tool - an ongoing challenge speech by mr mugur isarescu, governor of the national bank of romania, at " the 41th meeting of the central banks governors ’ club of the central asia, black sea region and balkan countries ", istanbul, 25 march 2019. * * * as prepared for delivery distinguished audience, dear colleagues, it is a great pleasure for me to address this distinguished panel on a topic that is both important and challenging for central banking. the session ’ s title includes three key issues : effectiveness, knowledge and trust, all in relation to the manner in which central banks communicate their policies and actions. i would like to share with you some general thoughts regarding these issues, as well as the national bank of romania ’ s experience in this area over the recent years. more transparency, commitments too views and practices concerning transparency and communication have evolved dramatically in the last decade. not long ago, the conventional wisdom was that monetary policymakers should say as little as possible, take markets by surprise and be rather cryptic. things have changed, as the more independent central banks also became accountable for the ‘ public goods ’ they were called to provide for : a credible and convertible currency, price stability, employment and growth in other cases, banking sector supervision and financial stability. people tend to take these ‘ public goods ’ for granted, appreciating their importance only when lost. clear communication of the central bank ’ s objectives, policy strategy and its decisions proved essential to anchoring inflation expectations and enhancing monetary policy effectiveness. however, most research works in this area show that increased transparency is not enough. a central bank must demonstrate commitment and ability to achieve its objectives through a systematic implementation of its policies. the markets and the public at large need to be convinced by central banks through consistent and effective words and policy actions, formulated as plainly as possible, in order to build knowledge and confidence – all vital for an effective management of public expectations. despite a growing recognition of the importance of transparency in monetary policymaking, no consensus has emerged yet – either among academics or central banks. there is still debate on what is the appropriate degree of transparency or the best communication path, so that the two factors can contribute to an effective achievement of policy objectives as well as an efficient market functioning. the ‘ best practice ’ in the field depends, inter alia, on the size, structure and complexity of the economy, its global interlinkages and policy cycles,

real convergence, the 2 / 4 bis central bankers'speeches development gaps across the regions of romania have actually increased. such a status quo is not beneficial, for instance, in the context of euro adoption, as it favours asymmetric shocks and uneven effects of public policies. these imbalances can be mitigated, first and foremost, through investment in infrastructure. for instance, the construction of highways is essential for connecting romania ’ s regions, encouraging regional trade and investment, with favourable effects on regional development and cohesion inside the country. 3. looking for a way out of a labour market dilemma another area that deserves particular attention is the labour market, at a time when the romanian one is facing considerable challenges. as a catching - up open economy, within a european union based on the free movement of capital and labour, our country was bound to find itself in a dilemma sooner or later. more precisely, there are contradictory arguments with regard to the adequate path of the wage level in the romanian economy. on the one hand, wages should be governed by productivity dynamics, so as not to erode the competitive position. on the other hand, they cannot be considerably below those in other economies, as this would simply result in a labour force drain, with dramatic consequences if not addressed quickly. specifically, we are facing an emigration problem today, as more than three million romanians ( a significant percentage of the population ) have left their homeland for other eu member states. therefore, to limit emigration, wages should increase. as noted above, the only way to do that without hindering competitiveness is to boost productivity. foreign direct investment has helped total factor productivity in recent years, yet if wages reach too high levels, attracting investment may become a problem. we therefore need to ensure that wage levels are compatible with attracting investors, but at the same time acknowledging that, at least in certain areas, wages need to go up at present, in order to mitigate the labour force drain that affects the private and public sectors alike. however, pay rises in the private sector should not be triggered only by an increase in public sector wages. while raising the minimum wage has been necessary, we should be very careful not to hurt employers, as they represent an important engine of the economy. the key is, in my opinion, to increase wages at an adequate, sustainable pace, in order for romanians to ultimately benefit from an improved living climate reflected in a higher purchasing power, but also from preserved macroeconomic