trends. central banks, too, may have information about the shocks hitting the economy, or about how they will be propagated, or indeed about the way in which policy is likely to respond. provision of information about these issues may help people to reduce their forecast errors and take more informed decisions. as we discussed earlier, complex economic systems may have multiple equilibria. movements between them depend on expectations and beliefs about others ’ beliefs. that is especially so if there are strategic complementarities where the benefits of a strategy depend on the choice of strategies by others. communication might help to coordinate beliefs so that a good rather than bad equilibrium results. suppose that private investors begin to doubt the health of a bank which the central bank knows to be fundamentally solvent. a signal from the central bank that the bank is solvent may help to change beliefs, thus ensuring the continued liquidity and hence solvency of the healthy bank. but it may not be clear that the bank is solvent, and in practice there is often no smoke without fire. communication may help to improve the credibility of public policy. economic policymakers often confront the problem that a future policy setting that is optimal today is not likely to be the policy that it would be optimal to follow tomorrow. before central bank independence, a problem for monetary policy was that a government promise to deliver low inflation was not credible. wage and price setters knew that if contracts were based on the assumption that future inflation would be low, the government would not be able to resist the temptation to generate inflation higher than promised because that would temporarily boost employment and output. so the initial promise was not believed. once expectations of high inflation were embedded into prices and wages, it was at that point rational for the government to tolerate high inflation, because the cost of reducing it would be a deep recession. the idea of giving central banks independent control over monetary policy was to remove this temptation to inflate. 15 communication is a potential solution to the credibility problem. if policymakers are transparent about the objectives of a policy – and the strategy to be followed in pursuit of those objectives – it will be easier to hold them accountable for their actions. this increases the incentives for policy makers to meet their objectives. despite all these benefits, it does not always follow that more communication is beneficial. more communication can be costly and self - defeating. first, private participants face costs in collecting and processing information that could mean important messages are lost. the bank of england could publish all of the

that we make concrete progress in the first period of our new objective – while we re - wire ourselves we need to be getting some early runs on the board. as i mentioned a moment ago, from time to time i hear it asserted that the pra is not doing anything to advance its new objective. let me be blunt : people who make that claim are simply not paying attention. parliament foresaw this problem and required us to publish a report setting out what we are doing. we did this in july and it ’ s a real page - turner, perfect for reading on your sun - lounger on the beach. but just in case you had other things to read in august, or became a little drowsy before getting all the way through it, let me very briefly pick out a few things from the list of what ’ s been done so far. 7 i ’ ll start with our decision to scrap the bankers ’ bonus cap. believe you me, this was not an easy thing to get rid of and a wise member of the treasury select committee was probably right to ask me if this was the single most unpopular thing the pra might ever have done – to which my answer was yes! ( this was in fact great news as it allowed me to pull ahead of nikhil in our competition to be the most unpopular regulator in the land ). but i was nonetheless keen to make this change early in the life of our new objective. we have 6 in fact, it now appears on the front page of the advice that goes to our rule - making committees. 7 competitiveness and growth : embedding the pra ’ s new secondary objective | bank of england bank of england always seen this piece of regulation as being completely unnecessary for prudential purposes – in fact actively counterproductive, as it encouraged higher base salaries which were harder to adjust in response to shocks. and it was clearly damaging for competitiveness across two of our three channels – it made the uk a less attractive location for global firms and talent, and gave uk firms a disadvantage in attracting talent in their foreign operations. more than this, precisely because scrapping the cap is unpopular getting rid of it was an important early signal of intent, that we are serious about changing regulations where they don ’ t do something useful and are bad for competitiveness and growth. and i can tell you that this move was noticed at the highest level in major international banks across the world. i will stick with the topic of bankers