Central bank communication is a work in progress everywhere, but particularly so in the euro area.
Unlike the Fed, the Bank of England, and the Bank of Japan, which all publish minutes of their policy meetings with a lag of a few weeks, current ECB rules anticipate releasing summary records of Governing Council meetings only 30 years after they occur.
However, change seems afoot. Already last summer, several officials – including ECB President Mario Draghi and Bundesbank President Jens Weidmann – publicly stated their view that the Council should issue timely minutes of its meetings. Just last month, Mr. Draghi reported that the Council discussed a specific proposal from the Executive Board. And press reports indicate that the ECB is trying out various reporting formats. It seems to be only a matter of time before the ECB joins its sister institutions and issues summaries of its policy discussions in a timely manner.
Why should we care? The modern theory and practice of central banking both confirm that transparency is essential for effective policy. A public that understands the strategy and prospective responses of central bankers to economic and financial developments is more likely to behave consistently with policy objectives. When private decisions are made based on expectations of inflation that are consistent with the central bank’s target, then it is more likely the target will be achieved. And, possibly most importantly, transparency reduces the likelihood that policymakers themselves will be a source of uncertainty and instability.
Will the release of minutes really make the ECB more effective in meeting its stated price stability goal? Perhaps not. Since its inception in 1999, euro-area inflation expectations have been well anchored even without the publication of minutes. Even today, professional forecasts of euro-area inflation four years out are centered on 1.9% with a standard deviation of only 0.2%. Remarkably, despite the financial crisis and deep recession, these medium-term forecasts have barely changed in recent years, and remain in line with the ECB’s target of close to, but less than 2%.
This stability of expectations consistent with its objectives may be a consequence of the fact that ECB officials communicate frequently by other means, including press conferences, speeches, and testimony. Whereas early on, the ECB probably concealed internal debate, the open advocacy in recent years of individual Governing Council members has highlighted notable differences, including votes on sensitive matters. The highly publicized sudden departure of two German Council members, Axel Weber in April 2011 and Jürgen Stark later that year, did so even more dramatically.
Nevertheless, the publication of minutes could help the ECB more now than ever before. For all practical purposes, the ECB’s policy rate has been at the zero lower bound (ZLB) since mid-2012, leaving it only unconventional means to stimulate economic activity. At the same time, inflation is well below the ECB’s goal (February consumer prices rose by 0.7% from a year ago), while the feeble recovery still is putting downward pressure on prices.
ECB officials may be right that the probability of a sustained deflation remains quite low, but they also know that the economic costs of a surprise deflation – together with the difficulties of restoring price stability when deflation expectations become entrenched – make it a very undesirable risk to take (as officials in Japan can testify). Consequently, underpinning the credibility of the ECB’s numerical inflation objective is paramount. And, the publication of minutes could highlight the Governing Council’s collective will to do “whatever it takes” toward that end.
So, why haven’t they published minutes already? Some ECB analysts have long worried that publishing individuals’ Governing Council votes (in line with practice at the Fed, the Bank of Japan, and the Bank of England) would compel national central bank leaders – who constitute a Council majority – to eschew their responsibility to the euro area as a whole and advocate their national interests.
While that concern can’t be completely dismissed, the ECB’s record suggests that the likelihood is low. Despite the one-country, one-vote rule at the Governing Council, there is no evidence that the interests of small countries (14 out of 18 today) have been overrepresented. Indeed, the ECB has been remarkably true to its objective: since 2000, inflation has averaged 2.1%, with a standard deviation of only 0.8%. (For comparison, German inflation under the Bundesbank in the 1990s averaged 2.7% with a standard deviation of 1.6%). And anecdotal evidence suggests that the Council’s focus has been region-wide even from the start, when fears of conflict were greatest (see, for example, our analysis of the ECB’s first decade). While secrecy may have helped build this “euro-area culture” within the Council, that behavior now seems robust.
Should the Council go so far as to publish the voting records of members? Doing so probably would make its actions even more credible (and, thereby, more effective). But even timely minutes without such attribution would be a step forward. Here's hoping for a minute-by-minute account soon.