1. 1 How do Central Banks Write? An Evaluation of Inflation Reports by Inflation Targeting Central Banks Comment By Peter Andrews, Monetary Assessment and Strategy Division Bank of England

2. Benchmarking and Measuring Performance MONETARY ANALYSIS AIMS 2003/4 To ensure that the Inflation Report and MPC Minutes present a clear account of the MPC’s latest economic assessment and policy conclusions. PERFORMANCE INDICATORS Media coverage Quality of, and feedback on, the Inflation Reports and MPC minutes Bank Objectives for 2002/03 (2002 Annual Report, p36) 3. To build public support for price stability, and public understanding of the MPC’s approach to its remit, through speeches, the Inflation Report and other publications, and through other initiatives 2

3. Objectives of publishing the IR The Inflation Report serves two purposes. First, its preparation provides a … framework for discussion among MPC members as an aid to our decision making. Second, its publication allows us to share our thinking and explain the reasons for our decisions. Also a requirement under the Bank of England Act 1998 3

4. November 2001 4

5. 5

6. February 2003 6

7. 7

8. February 2003 Inflation Report Release 8 H

9. 9 H

10. March 2003 MPC Minutes Release 10

11. March 2003 MPC Minutes Release 11

12. Summary on market measures of surprises Short-term interest rates not the clearest measure of surprise Long-term rates and inflation expectations are of greater macroeconomic significance 12

13. Direct measures of public opinion Inflation expectations over the next year Understanding of monetary policy Effect of interest rates on inflation Satisfaction with the Bank of England What is best for the economy, what is best for individual Quarterly Bank of England / NOP poll investigates public expectations of: See K. Scheve “Public Attitudes About Inflation: A comparative Analysis” - in Bank of England Quarterly Bulletin, Autumn 2001 13

14. Knowledge of Transmission Mechanism (a)(b) 14

15. Satisfaction with Bank of England 15

16. Who sets interest rates? (a)(b) 16

17. Opinion Polling Summary Direct measure of public, as opposed to market, understanding Can measure understanding of framework and strategy But recall many of the public not well informed 17

18. Range of monetary publications Inflation Report: describes recent developments and projections, summarises minutes, annually analyses forecast errors MPC minutes: describes recent developments, explains decision, examines alternatives, discusses strategic issues Quarterly Bulletin: contains explanatory articles on monetary and financial stability topics, short research articles and speeches Working Papers Monetary and Financial Statistics (Bankstats) Ad hoc publications (eg books describing the Bank model) Speeches and IR press conferences: can address objections 18

19. Points for discussion Outlook probabilistic (so point forecasts not published by Bank). Balance of risks essential Target continuous through time, not confined to two year horizon Role of judgement -in constructing projections -in making policy after the forecast What past knowledge is assumed? -some details, e.g. conventions for exchange rate, not repeated each time Surprises exercise: range of macro control variables is limited, eg activity not included 19

20. Summary A welcome contribution to benchmarking and measuring central bank performance Could consider other measures of expectations, eg –Longer-horizon market interest rates and inflation expectations –Opinion polls Inflation reports are only part of central banks’ public information strategy; other publications fulfil some key factors identified in the paper Crucial that Inflation Reports are not presented or interpreted mechanically 20

21. 21 How do Central Banks Write? An Evaluation of Inflation Reports by Inflation Targeting Central Banks Comment By Peter Andrews, Monetary Assessment and Strategy Division Bank of England