wu ( 2003 ) show empirically that a two - factor model of the term structure can be closely linked to monetary policy the working assumption here is that u. s. monetary policy is conducted “ as if ” there were a numerical inflation objective, even though there is no explicit agreement on the fomc as to what that objective should be. castelnuovo, efrem, sergio nicoletti - altimari and diego rodriguez palenzuela ( 2003 ). kohn ( 2003 ) notes that the volatility of long - term inflation expectations in the united states has declined and is similar to that of industrial countries, including those that formally target inflation. for example, the model of erceg and levin ( 2003 ) has that implication. some care must be taken when using inflation - indexed bonds to measure inflation expectations, however. these bonds were introduced in the united states relatively recently, and the secondary market remains less liquid that those for other treasury securities. changes in measured inflation compensation drawn from this market may thus sometimes reflect changes in liquidity or risk premiums as well as changes in market expectations of inflation. fundamentals, but only on the assumption that the medium - term inflation expectations held by market participants are time - varying. all the cited findings apply to recent data, as well to earlier observations. the evidence for asymmetric information and adaptive learning, at least in regard to the fed's inflation objective, thus seems quite strong. implications for central bank communication so far i have discussed why central bank communication is important for financial market efficiency and good macroeconomic performance, and i have presented a few pieces of evidence that suggest that asymmetry of information between the federal reserve and the public may be an important phenomenon. what implications does all this have for the communication policies of the fed? in an ideal world, the federal reserve would release to the public a complete specification of its policy rule, relating the fomc's target for the federal funds rate to current and expected economic conditions, as well as its economic models, data, and forecasts. using this information, financial - market participants would be able to forecast future values of the policy rate and efficiently price long - term bonds and other assets. unfortunately, as stressed by poole ( 2003 ) as well as by chairman greenspan ( 2003 ) in his talk at the most recent jackson hole conference, specifying a complete and explicit policy rule, from which the central bank would never deviate under any circumstances,

ben s bernanke : fedspeak speech by mr ben s bernanke, member of the board of governors of the us federal reserve system, at the meetings of the american economic association, san diego, 3 january 2004. the references for the speech can be found on the board of governors of the federal reserve system ’ s website. * * * there was a time when central bankers did not talk to the public. montagu norman, the governor of the bank of england for a quarter of a century after the first world war and a highly influential figure in his time in central banking circles, was notorious for his reclusiveness, both personal and professional. according to his biographer, norman lived by the maxim, “ never explain, never excuse ” ( boyle, 1967, p. 217 ). norman was hardly unique. central bankers long believed that a certain “ mystique ” attached to their activities ; that making monetary policy was an arcane and esoteric art that should be left solely to the initiates ; and that letting the public into the discussion would only usurp the prerogatives of insiders and degrade the effectiveness of policy. in contrast to this tradition of secrecy, central banks around the world have become noticeably more open and transparent over the past fifteen years or so. policymaking committees have adopted various mechanisms to enhance their communication with the public, including more informative policy announcements, post - meeting press conferences, expanded testimony before the legislature, the release of the minutes of policy meetings, and the regular publication of reports on monetary policy and the economy. this increased openness is a welcome development, for many reasons. perhaps most important, as public servants whose policy actions affect the lives of every citizen, central bankers have a basic responsibility to give the public full and compelling explanations of the rationales for those actions. besides satisfying the principle of democratic accountability, a more open policymaking process is also likely to lead to better policy decisions, because engagement with an informed public provides central bankers with useful feedback in the form of outside views and analyses. yet another benefit of full and timely release of information about policy decisions and their rationales is a reduced risk that market - sensitive information will dribble out through inappropriate channels, giving unfair advantage to some financial market participants. admittedly, for many central banks, including the federal reserve, progress toward greater transparency has come in halting steps and not without trepidation. for example, the decision to announce changes in the