We are grateful to a large number of colleagues in various central banks for useful discussions on the issues addressed in this paper and for their help in retrieving some of the data employed in the empirical analysis. This paper presents the authors' personal opinions and does not necessarily reflect the views of the European Central Bank.
Communicating About Macro-prudential Supervision – A New Challenge for Central Banks†
Article first published online: 21 AUG 2012
© 2012 Blackwell Publishing Ltd
Volume 15, Issue 2, pages 179–203, Summer 2012
How to Cite
Born, B., Ehrmann, M. and Fratzscher, M. (2012), Communicating About Macro-prudential Supervision – A New Challenge for Central Banks. International Finance, 15: 179–203. doi: 10.1111/j.1468-2362.2012.01301.x
- Issue published online: 21 AUG 2012
- Article first published online: 21 AUG 2012
In response to the financial crisis of 2007–10, many central banks have been given responsibility for macroprudential supervision. This paper argues that central bank communication will play a central role for that purpose, and makes the point that it should be generally geared towards clarity, transparency and predictability, in order to enhance the effectiveness of macroprudential policies and ensure central bank accountability. Moreover, central banks must manage expectations by clearly communicating what macroprudential policy can achieve, and what its limitations are, to counteract reputational risks. This paper also provides empirical evidence showing that financial markets react significantly and systematically to central bank communication about financial stability issues. However, some forms of communication – such as through speeches – may at times raise volatility and uncertainty, in particular during crises, thus underlining the importance of choosing carefully a communication strategy on macroprudential policy which is suited for a given market environment.