on expectations. the most far - reaching approach is taken by a few central banks that communicate a quantified future own interest rate path ( and the uncertainty surrounding it ). with regard to the latter, the “ own instrument projection ” is supposed to be the interest rate path that is best able to achieve the central bank ’ s objectives under certain model and judgement - based assumptions concerning the functioning of the economy. this approach has the property of being fully consistent with the central bank ’ s targets and other inputs. however, it also entails several problems. it is highly dependent on the specific analytical framework from which it is derived. in the light of model uncertainty and the unavoidable use of judgement in the forecasting process, the optimal interest rate path involves considerable communication challenges. in particular, communicating a future subjective path for the policy rate might be interpreted as an unconditional commitment – which in turn could reduce the necessary flexibility of monetary policy. c brand, d buncic and j turunen ( 2006 ), the impact of ecb monetary policy decisions and communication on the yield curve, ecb working paper 657 ; r gurkaynak, b sack and e swanson ( 2005 ), do actions speak louder than words? the response of asset prices to monetary policy actions and statements, international journal of central banking, 1, pp 55 - 94. v reinhart and b sack ( 2006 ), grading the federal open market committee ’ s communications, paper presented at the 2006 aea meetings, boston ; bank of england ( 2005 ), do financial markets react to bank of england communication?, quarterly bulletin, winter 2005, pp 431 - 39. therefore, communicating the conditional nature of the interest rate path is of key importance. from an empirical point of view, it is certainly too early to reach a definitive conclusion regarding the overall costs and benefits of this approach. however, existing empirical analysis does not indicate that this approach delivers an uniquely superior predictability of monetary policy outcomes. as regards forward guidance, i prefer the approach of “ letting the strategy speak for itself ”. in my view the most beneficial role of communication in fostering monetary policy effectiveness lies in improving medium - term to long - term predictability and credibility. and here, our explicit strategy must play the central role. conditioning any forward guidance on the strategy helps making clear that we do not act in an unconditional and pre - committed way whilst at the same time lending credibility to the attitude that we

axel a weber : monetary policy strategy and communication dinner speech by professor axel a weber, president of the deutsche bundesbank, at the deutsche bundesbank / federal reserve bank of cleveland conference on “ monetary policy strategy : old issues and new challenges ”, frankfurt am main, 6 june 2007. * * * introduction ladies and gentlemen welcome to this conference on “ monetary policy strategy : old issues and new challenges ”. the general thinking on monetary policy strategy has undergone some important changes in most countries over the past few decades. there has been a considerable convergence of some core principles concerning monetary policy across countries. to name just the most important aspect : central banks should concentrate on price stability. the principle of “ price stability first ” enhances monetary policy credibility, and credibility is a prerequisite for successfully anchoring inflation expectations at levels consistent with price stability. it is therefore certainly true that there is much more commonality and shared interest between the largest central banks than is sometimes assumed in the public debates about our respective policies. however, different approaches and open questions continue to exist. against this background, a conference on monetary policy strategy will undoubtedly be enriched by the various perspectives which different central banks can provide. ideally, such a joint effort will enhance our knowledge about common challenges as well as develop a beneficial, mutual insight into issues on which we take a more idiosyncratic course. i am therefore very pleased that the deutsche bundesbank and the federal reserve bank of cleveland have been able to organise this joint conference on research issues related to monetary policy strategy and communication. so thank you to the organisers from both central banks for bringing together an impressive array of outstanding researchers. and, of course, thank you also to the bundesbank ’ s conferences division which has, as always, successfully mastered all of the logistical and organisational challenges that such an event involves. in my remarks i would like to focus on a matter of direct relevance to this research conference, namely the relationship between communication and strategy. communication and monetary policy strategy 2. 1 some general aspects nowadays, it is widely accepted that public institutions have to be transparent and accountable. this is even more the case for central banks with a guaranteed independence. there is no question that transparency and accountability of monetary policy are rightly regarded as indispensable elements of public policy in a democratic society. however, central banks ’ communication efforts usually go far beyond merely fulfilling such legal requirements. this is because communication is also an important element in fostering the effectiveness