When it comes to one particular aspect of transparency - forward guidance - I think a more fundamental rethink may be needed, however. Forward guidance was introduced by central banks after the Global Financial Crisis. In principle, it offered real promise. Offering a soft pre-commitment to a given policy path could bring forward some of the effects of future policy, giving it extra bang for its buck.
In practice, these benefits are only achievable if the policy guidance issued is hard enough to offer some credible pre-commitment, at the same time as being soft enough not to lock central banks in too tightly should circumstances change. This is a classic Three Bears problem: how to choose a form of words that is neither too hard, nor too soft, but just right.
Getting guidance just right is a problem central banks, a decade on, have not solved satisfactorily. In my view, with few exceptions forward guidance has ended up either being too vague and ambiguous to offer an effective source of assurance to the outside world, or a source of regret among central banks who have over-committed to something ex-post undesirable. Sometimes, it has been a bit of both. As I see it, the structural problems with forward guidance come in two flavours.
First, the type of forward guidance that financial market participants crave is precise, time-specific guidance. This makes their job of pricing assets and inferring central bank signals easiest. But this is also the type of forward guidance central banks are, rightly, least willing to provide. The path of policy ought to depend on the path of the economy, not the passage of time. And that path is uncertain. So from a policymaker perspective, imprecise, state-dependent guidance is the preferred form.
This difference in requirements gives rise to an inherent tension. Either guidance ends up being ex-ante over-precise and ex-post unreliable. Or it is ex-ante imprecise but then serves little or no ex-post signalling role. We have seen examples of both types in the UK, with early forward guidance erring towards the former and recent forms towards the latter. So-called “dot plots” combine, for me, the worst of both worlds.
There is a second problem with forward guidance, first articulated by Stephen Morris and Hyun Shin several years ago. The provision of public policy signals may dampen incentives among market participants to invest themselves in understanding the economy. These risks have I think been realised in practice, with forward guidance encouraging too much poring over central banks’ words and too little poring over the data on which monetary policy decisions are based. That is the wrong way around.
I do not conclude from this that forward guidance has no role. I do, however, think this role, its audience and its content needs to be rethought fairly fundamentally. This could build on the experience of what was, in my view, the one example so far of successful forward guidance in the UK.
In 2014, the MPC used three little words, “limited and gradual”, to describe the future trajectory of interest rates. This language was neither precise nor time-specific, but did offer a clear and simple description of the broad direction and destination of interest rates. It offered next to no guidance to those pricing short sterling assets - that was not its purpose. But it did help households when planning taking out a mortgage and businesses when contemplating taking out a loan.
We know that from surveys the Bank conducted at the time. The MPC’s message got through to around 75% of companies and around a fifth of households. In other words, the words were both fairly widely understood and helped most those that mattered most to decision-making in the economy. This guidance did not dis-incentivise anyone from personal budgeting, though it did provide some basis for that budgeting.
My takeaway for forward guidance from this experience echoes my takeaway for the Bank’s approach to communications generally. Where possible, keep it short and simple. And focus the message on the needs of those shaping our economy, companies and households, not those trading financial instruments. This is the direction the forward guidance puck, in my view, needs now to travel.

*1:cf. これ

*2:ここで「パック」という言葉を使っているのは、講演の最初の方で、公的政策はウェイン・グレツキー(cf. ウェイン・グレツキー - Wikipedia)式に、パックの現在の位置ではなく行く方向を見据えるべきだ、と述べたことを受けている(グレツキーの元の言葉の日本語での解説については例えばここ参照)。ちなみにその記述の注釈でホールデンは、マーク・カーニーの任期中はアイスホッケーの比喩を決して使わないようにした、というギャグ(?)を飛ばしている。さらにちなみにだが、退任講演のタイトル「Thirty years of hurt, never stopped me dreaming 」もスポーツ(ユーロ1996のイングランドの応援歌、cf. 日本語解説)に因んでおり、その点も注釈で注記している。