Recently, there has been a lot of criticism of RBI (see thisIMF selected issuesfor instance). The main target areas have been managing the impossible trinity and commmunication. I have critiqued the developments on first here. Though, I did make a case for better communication I have never been sure what it means.
Like experts say RBI’s monetary policy documentis too lengthy (usually about 80-90 pages) and should be shortened like that of other central banks. Going through the document it does appear lengthy but has a lot of information for the public. It is tough reading it but tells much more about the economy (Indian) than statements given by any other Central bank.
But then other Central Banks come out with similar reports on a regular basis – economic reviews, financial stability reports, monthly reviews (which even RBI does) etc- and RBI releases them all at one go . So it is not as if other Central banks don’t have detailed documents. Infact, sometimes there is a deluge which is really difficult to manage.
My thoughts have been confirmed by this paper by Alan Blinder et al. You can also read the short summary here. It is a liertaure survey on Central bank communications. The abstract goes like this:
Over the last two decades, communication has become an increasingly important aspect of monetary policy. These real-world developments have spawned a huge new scholarly literature on central bank communication — mostly empirical, and almost all of it written in this decade. We survey this ever-growing literature. The evidence suggests that communication can be an important and powerful part of the central bank’s toolkit since it has the ability to move financial markets, to enhance the predictability of monetary policy decisions, and potentially to help achieve central banks’ macroeconomic objectives. However, the large variation in communication strategies across central banks suggests that a consensus has yet to emerge on what constitutes an optimal communication strategy.
So, it is important but there is no standard way of doing it. We just can’t say this particular approach is good and this bad. Every Central Bank has its own way of doing it. As long as they do their job of managing inflation it is good enough.
Actually, I am increasingly getting sceptic of academics who talk about standardising things. It reminds you of Washington Consensus times when there was an emphasis on standardisation of fiscal and monetary frameworks on lines of the western world which failed for obvious reasons. This is not to say we shouldn’t change but there should be a case for it as well. the more I read, increasingly I agree with Dani Rodrik that second best institutions are as good.