jean - claude trichet : a few remarks on communication by central banks keynote address by mr jean - claude trichet, president of the european central bank, at the 25th horizont award ceremony, frankfurt am main, 16 january 2008. * * * ladies and gentlemen, it is with great pleasure that i have accepted the invitation from horizont on the occasion of the 25th anniversary award ceremony. i am honoured to see so many distinguished guests from the german media and communications industry in the audience. the longstanding tradition that this event enjoys demonstrates that media and communications play an important role in all aspects of modern societies, including, though perhaps more recently, that of monetary policy. in today ’ s address, i should like to talk about the challenges facing central bank communication, from a central banker ’ s perspective. international, and, in particular, european media and many other intermediaries play a decisive role in the process of disseminating information about the ecb ’ s monetary policy. media coverage of monetary policy actions is an important channel of the ecb ’ s communication strategy, and thus an important factor for our policy ’ s success. in the euro area, currently comprising 15 member countries ( with the accession of cyprus and malta on 1 january 2008 ) and beyond, national media have retained their important role in making the central bank ’ s actions and its objectives understood by national audiences. in my address, i will first elaborate on how central banks in general communicate, and then explain how the ecb addresses its audience. how central banks communicate it is widely accepted today that independent central banks are best placed to maintain price stability in the economy. the maastricht treaty, therefore, has bestowed the ecb with full independence in the pursuit of its mandate. in a democracy, independence must be accompanied by both transparency and accountability to the general public. in other words, it is the duty of independent central banks to be transparent and to communicate not only with specialised audiences, such as financial market participants, but also with the public at large. transparency is multi - faceted, but basically involves making information available to each interested party that is “ relevant ” for their understanding of monetary policy decisions. central banks ’ approach to communications has changed radically in recent years. about more than a decade ago, most central bankers believed that “ secrecy ” about their actions and intentions would be key to successful monetary policy.. theoretical studies at that time suggested that secrecy and occasional “ surprises ” would make monetary policy more effective.

1 advancements in economic and monetary theory seem to have altered this paradigm. today, most central banks around the world accept the importance of high standards in terms of transparency and greatly emphasise the need for clarity in their communications. to give an example, it is common practice nowadays among central banks – and in particular at the ecb – to inform the public about monetary policy decisions as soon as the decision is taken. the ecb was the first to do so among major central banks in the industrialised world. this increased transparency has contributed to monetary policy effectiveness. see, for example, cukierman, a. and a. meltzer ( 1986 ), “ a theory of ambiguity, credibility, and inflation ”, econometrica, vol. 54, pp. 1099 - 1128. the announcement of a numerical benchmark for price stability, in particular, has proven a powerful instrument to foster transparency by enhancing the public ’ s understanding of the given central bank ’ s objectives. in its pursuit of price stability, the ecb ’ s governing council, for example, has made clear that it aims to maintain inflation rates below and close to 2 % over the medium term. by announcing a quantitative definition of price stability, the ecb has provided a focal point for the formation of medium - term inflation expectations, “ close to, but below 2 % ”, and has made a significant contribution to the long - term predictability of inflation developments and monetary policy. central banks are prudent in their communication to always preserve their credibility in all circumstances. let me also say that prudence in communication finds solid justification, not least, in the existence of a multitude of audiences with different needs. 2 effective communication has clear benefits. first, and certainly more fundamentally, it fosters the longterm predictability of monetary policy. this helps reduce uncertainty about inflation and the costs associated with such uncertainty for consumers and investors. with its communications, a central bank can influence the formation of inflation expectations, and ensure that they remain anchored at the levels consistent with the central bank ’ s objective. without firm guidance on the goals of monetary policy, market participants could lose their point of reference which could result in them adjusting their longer - term inflation expectations as a mere reflection of current circumstances rather than taking into account the ability of the central bank to achieve its goal over the medium term. by contrast, in an economy in which inflation expectations are solidly anchored, each person can make well - informed financial decisions