Economist says central bankers are right to be vague
A rationale for FedSpeak- from the University of Leicester: Central bankers are right to avoid being completely clear about the state of the economy, according to a game theory expert who has been appointed Professor of Economics at the University of Leicester. Extolling the benefits of being vague, Chris Wallace, who joins Leicester from Oxford University where he was Professor of Economic Theory, says bank chiefs who provide “something in between full information and no information” on current economic conditions are employing the best tactics to help financial stability. Professor Wallace explains that if a central banker’s views on the economy are too revealing, traders will make the error of blindly following this advice, because they know that it will strongly influence stock markets. As a result, they may neglect very good sources of more private information, such as high-quality reports produced by their own companies. The end result is that people misprice stocks, because they rely only on one source of information to the exclusion of others. Professor Wallace says the solution is for the central banker to say something about the economy, but not enough to dominate markets. Central bankers are generally wise enough to follow this rule, he adds.