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ECB: Nagel Sees No Compelling Case For ECB Dot Plots

ECB
BundesbankEM BulletCentral Bank NewsCEEMEAEurozoneGermanyGlobalEmerging Market NewsEuropean Central BankBulletMarketsFixed Income BulletsForeign Exchange BulletsRegion

ECB's Nagel overall sees no "compelling case for introducing dot plots for the Eurosystem" in his speech today at Harvard University, looking at Governing Council independence, monpol communication effectiveness, and projection uncertainty communication. However, Nagel nods to the ongoing interim strategy review, which "includes an analysis of how risk and uncertainty should inform both policy decisions and policy communication" - so there might be some demand from him to update how the ECB reacts to projection uncertainty. Key highlights below:

  • Nagel appears hesitant to introduce the plots from the perspective of Governing Council independence: "Dot plots would force all Governing Council members to regularly articulate their perspectives on the future trajectory of interest rates [...] we are well advised not to put ourselves in a situation that might increase pressure on us to act in ways others want us to."
  • He is "sceptical" if a dot plot could "significantly enhance the Eurosystem’s effectiveness of monetary policy communication" on the back of "comparative studies on different methods of monetary policy communication [being] inconclusive".
  • Nagel additionally thinks there are "better alternatives" from the standpoint of communicating uncertainty around inflation projections.
  • Specifically, he mentions the enhancement of existing communication methods, as well as "develop[ing] new measures, such as scenario and sensitivity analyses, as well as improved fan charts". The reference to fan charts here is interesting as the Bernanke review of the BOE's communication suggested that fan charts were not an optimal communication device and noted that the BOE should rely on them less.
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ECB's Nagel overall sees no "compelling case for introducing dot plots for the Eurosystem" in his speech today at Harvard University, looking at Governing Council independence, monpol communication effectiveness, and projection uncertainty communication. However, Nagel nods to the ongoing interim strategy review, which "includes an analysis of how risk and uncertainty should inform both policy decisions and policy communication" - so there might be some demand from him to update how the ECB reacts to projection uncertainty. Key highlights below:

  • Nagel appears hesitant to introduce the plots from the perspective of Governing Council independence: "Dot plots would force all Governing Council members to regularly articulate their perspectives on the future trajectory of interest rates [...] we are well advised not to put ourselves in a situation that might increase pressure on us to act in ways others want us to."
  • He is "sceptical" if a dot plot could "significantly enhance the Eurosystem’s effectiveness of monetary policy communication" on the back of "comparative studies on different methods of monetary policy communication [being] inconclusive".
  • Nagel additionally thinks there are "better alternatives" from the standpoint of communicating uncertainty around inflation projections.
  • Specifically, he mentions the enhancement of existing communication methods, as well as "develop[ing] new measures, such as scenario and sensitivity analyses, as well as improved fan charts". The reference to fan charts here is interesting as the Bernanke review of the BOE's communication suggested that fan charts were not an optimal communication device and noted that the BOE should rely on them less.