Here's a piece on what the Federal Reserve (and other central banks) can do to improve their communications
Its from Narayana Kocherlakota, who was president of the Federal Reserve Bank of Minneapolis (2009 to 2015)
He uses an analogy in which he likens the market to children keen to go on a picnic!
its worth a read, not only for its advice to central bankers about how to improve their communications with the market, but for traders who read too much into statements.
Kocherlakota concludes (bolding mine):
- One highly studied framework in cognitive science, for example, treats people as using a "mental models" approach to reasoning.
- This means they organize and interpret facts using simplified models of how the world works -- models that have trouble making inferences that depend on something being false.
- My own lesson from the reaction to the December 2012 statement is that the Fed needs to think more carefully about the way it communicates its plans and actions -- and that doing so will probably require it to broaden its intellectual reach.
But its worth reading the whole thing
