charles i plosser : communication and transparency in the conduct of monetary policy speech by mr charles i plosser, president and chief executive officer of the federal reserve bank of philadelphia, at the council on foreign relations, new york city, 8 may 2014. * * * the views expressed are my own and not necessarily those of the federal reserve system or the fomc. highlights 1. president plosser outlines his views that policy transparency and forward guidance could be enhanced if the central bank would be more explicit about its reaction function. 2. president plosser notes that one way to be more explicit would be to indicate the likely behavior of the policy rate based on a few different taylor - like rules that have been consistent with past conduct of monetary policy and are robust to our uncertainties regarding the true economic model. 3. president plosser believes that the federal reserve board staff ’ s model, called frb / us, seems to be a reasonable starting point for providing economic forecasts based on those rule - based policies. introduction thank you for the kind introduction. it ’ s a pleasure to return to the council on foreign relations. i know that the value of these sessions often arises during the discussion, so i will try to keep my opening remarks brief. before i go any further, though, i should begin with the usual disclaimer that my views are my own and do not necessarily reflect those of the federal reserve system or my colleagues on the federal open market committee. the topic i want to address today is communication and transparency in the conduct of monetary policy. some of you can recall when it was taken for granted that the central bank was supposed to be secretive and mysterious. the guiding principle was simple : the less said about monetary policy, the better. indeed, it was not until 1994 that the federal open market committee ( fomc ) began to announce policy changes made at its meetings. but times have changed. transparency has replaced secrecy, and open communication has replaced mystery. the extent of this transformation is, in many ways, remarkable. today, the issues of communication and transparency are front and center on the agenda of many meetings and conferences on central banking. a major reason for the focus on these issues is the recognition that the stance of monetary policy encompasses not just the current level of the short - term policy rate but its expected future path as well. more broadly, economists have come to understand that expectations, including expectations about monetary policy, play an important role in determining

the rules. a monetary policy report that might accompany such a forecast could include various views that may differ from the baseline summaries. performing this exercise would indicate the inherent uncertainty that policymakers face, yet it would also provide a better sense of the likely direction of policy and the variables most related systematically to that policy. further, this type of communication would push the fomc to conduct policy in a more systematic manner, which i believe will lead to better economic outcomes over the longer run. bis central bankers ’ speeches