the fx market. with more than 100meuros volume a day, continuous quoting and low spreads, the market has recently been able to absorb larger orders from both sides of the market than before, within only moderate exchange rate movements, and without an excessive central bank ’ s assistance. indeed, the interbank market volumes and the central bank ’ s presence have been inversely correlated, and this behavior is in line with the experience some other countries, for example the czech republic, had at this stage of market development in transition. in serbia, the daily fx volatility increased at the beginning of the year, following the discontinuation of nbs interventions in the final months of 2010. after calming down during the first months of 2011, the volatility started rising once more in may this year – again after the nbs stopped intervening. while the stronger nbs interventions would successfully calm the markets, they would also delay market development by stifling genuine market making of private banks. some of our evidence points out that the short - term exchange rate volatility increases gross trading volumes in the interbank market and thus strengthens the arbitraging behavior of market participants. chart 2. short - term fx volatility and spot trading volumes in the interbank market interbank market spot gross trading volume ( rhs ) st. dev. ( eur m ) 30 - days moving average ( lhs ) 0. 008 egarch ( lhs ) 0. 007 0. 006 0. 005 0. 004 0. 003 0. 002 0. 001 0. 000 jun jul avg sep oct nov dec jan feb mar apr may jun jul our recent experience thus gives a fairly straightforward answer to a notorious chicken - andegg problem. less central bank presence in the market increases short - term exchange rate volatility, which in turn strengthens market making and volumes, making the market more resilient to shocks and thus decreasing the need for nbs interventions. in addition to supporting market making, higher short - term volatility should also help market development by discouraging short - term speculative behavior. arguably, a 1 % daily volatility in the exchange rate presents a problem for an investor seeking an immediate profit from its fx position, but is less of an issue for a longer - term investor in treasury securities. in this manner, the higher short - term volatility may have also strengthened the stability of

charles i plosser : influencing expectations 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 2014 bank of japan - institute for monetary and economic studies conference “ monetary policy in a post - financial crisis era ”, tokyo, 28 may 2014. * * * the view expressed today are my own and not necessarily those of the federal reserve system or the fomc. highlights president charles plosser discusses his views on the role of forward guidance and transparency in influencing expectations. president plosser outlines his proposals to be more explicit about a reaction function. 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. president plosser believes that the model created by the federal reserve board staff, called frb / us, seems to be a reasonable starting point for providing economic forecasts based on those rule - based policies ; however, other models would be useful to consider. introduction i would like to thank governor kuroda for inviting me to participate in this thought - provoking conference. i would also like to thank professor maury obstfeld for suggesting a number of interesting topics for us to consider. he has highlighted some issues that i believe are intimately related to one another : namely, the central bank ’ s ability to influence expectations through forward guidance, the role of quantitative easing, and the process of exiting from that easing. indeed, i think it is important that we think about monetary policy more holistically, if you will. how effective we are with forward guidance or quantitative easing can only be assessed in the broader context of a central bank ’ s overall approach to policy, including its approach to communication and transparency. however, before i go any further, 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 ( fomc ). i want to focus my remarks today on communication and transparency in the conduct of monetary policy. one major reason for this emphasis 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. economists have come to understand that expectations about monetary