donald l kohn : central bank communication remarks by mr donald l kohn, member of the board of governors of the us federal reserve system, at the annual meeting of the american economic association, philadelphia, 9 january 2005. * * * a basic tenet of economics is that markets work better - reflect underlying economic forces, efficiently allocate resources - with more information. because central banks are key players in financial markets, a better public understanding of central bank behavior should improve pricing in those markets. over my career, i have witnessed notable efforts by central banks to improve the public ’ s understanding of their behavior by increasing the amount of “ talk ” they do about policy and the economy. the trend toward more talk reflects several interrelated developments. the demand for information has expanded along with the size and sophistication of financial markets ; financial assets have increased far faster than gross domestic product, and a much greater variety of instruments are priced. at the same time, rising wealth has meant that increasing numbers of people have a stake and an interest - in the forces determining the prices in those markets. technological change including the ubiquitous internet - has made it easier to cater to and feed this interest by making more information available more quickly and cheaply. and, in part as the result of academic progress on the topic, central banks better appreciate that more - accurate expectations of market participants can help improve the performance of the economy and the achievement of economic objectives. changes in the political environment surrounding central banks have reinforced the increased demand for transparency. greater support for independent central banks with goals set by the political process was one of the results of the lessons of the great inflation of the 1970s. but an arm ’ s - length distance from immediate political pressures requires accountability and reporting to elected representatives. the quid pro quo is most evident in many of those countries that have shifted to inflation targeting, but the united states followed the same pattern earlier - in the late 1970s. in that period, laws for the first time established goals for monetary policy, albeit not as specific as inflation targets, and imposed reporting requirements in the form of reports and testimony to the congress. given the trends i have mentioned and the benefits of greater transparency, people sometimes wonder why central bank transparency has evolved as slowly as it has and why some central banks do not take additional steps to talk more - especially about what they see coming in the future. i will give you my own answer to this question, which i hasten to add, does not

norwood. one reason for this success, i am sure, is that she rose from the ranks, and the values of the bls were deeply ingrained in her over the 28 years she served this agency. those who worked with janet say she strongly believed the bls was uniquely positioned to contribute to the economic policy debate as an authoritative, unimpeachable source of information and analysis about the economy. in her 13 years as commissioner, janet succeeded in winning support for an ambitious expansion of the bls. she launched the annual consumer expenditure survey, as well as many other important data series, and elevated the skills and quality of statistical analysis throughout the agency. to supplement the traditional measurement of productivity as output per hour of labor, she oversaw the creation of a new measure of multifactor productivity in the private sector, estimating productivity as the result of both labor and capital inputs. when budget pressures threatened to end important data series collected elsewhere at the department of labor, she found the means to continue these series at the bls. at the same time, janet faced challenges to the bls ’ s tradition of professionalism and objectivity. from 1979, when she was appointed by president carter, to 1991, when she retired, the news on employment, productivity, and inflation was often bad. in this bis central bankers ’ speeches circumstance, the bls was sometimes accused of overstating economic problems, and it occasionally came under pressure to alter the basis for its data. janet norwood fended off these challenges with a mixture of resolve and flexibility, channeling some of the pressure into deliberate and constructive processes that eventually yielded improvements in the consumer price index and generated alternative price measures. as commissioner and like her predecessors, janet helped preserve the bls ’ s deserved reputation for accuracy and integrity by continually improving the design, procedures, and techniques of data collection. after government service, janet had a long and active retirement in which she continued her contributions to the economic profession and the science of statistics. she passed away on march 31 of this year. to members of her family who are with us today, thank you for her extraordinary service to our country. janet ’ s legacy continues in the ongoing work of the exceptional agency she helped build, on the foundation laid by carroll wright, whom she so appropriately joins today in this hall of honor. the bureau of labor statistics is exceptional, and in that way, i hope it serves as an example of how effective, reliable, and trusted government can be.