JH thread.

Jackson Hole was great and a big takeaway from this year was it should be made public every year like Sintra is.

One of the themes that continues to come up is central bank communication with the public. Sorta based on the idea Andy Haldane introduced in 2017.

The idea is, central bank policy efficacy can be greatly improved via a better communication strategy with the broader public, what Haldane called the "3 E's."

Seems there is a two part benefit to improved ability of CBs to communicate with the public.

1) Improved trust in an institutional sense and the positive externalities that come from that.

2) It is a neat way to better influence key channels such as the expectations channel, especially at the effective lower bound. And that looks good in general equilibrium model.

So what do we get, Macklem saying the key topic on the BoC agenda is improving communication with the public. And a paper from Gorodnichenko on practical ways policy can further this "important" goal. The Haldane revolution is here, but it's the most overrated problem CBs face.

The policy instinct is right, but the path is just off imo. Yes, adding policy space at the ELB is key but this route misses the key problems. One, hh expectations are empirically unreliable at best, at worst they are backwards looking.

A good example has been in the now famous wedge b/w forecasters and hh's during covid. The reality is, hh's are much more moved by factors that CBs interpret as transient because they are supply shocks and those inputs play a much more salient role in the lives of consumers.

And second, it probably doesn't work because getting hh's to care about CB inflation reports and dot plots is a lost cause. It's reverse QE, it works in theory likely not in practice.

Why don't CBs further delve into the channels they've had success with? The two key places this has been is in financial markets and accommodating fiscal expansion. The likely answer is, CBs are uncomfortable with both of these channels as they both "threaten" CB independence.

Imbedded in idea of better controlling hh expectations is not only policy space, but positive feedback loops, what Brainard called "opportunistic reflation."

But the reality is, CBs should be talking more about harnessing feedback loops in the places policy is most effective.

Financial conditions and accommodating fiscal are two main ways monpol is transmitted to the broader economy. CBs should stop fighting that and embrace it. CBs seem desperate for new tools, what about refining how we look at the current ones?

Things like cultivating and reinforcing feedback loops in financial markets that can drive real economic outcomes. Not just the wealth effect, that's dead, we know that, but financial conditions pass through is still very strong, what are the drivers beyond FX and credit....

Fiscal matters a lot, especially in large and persistent output gaps, are there ways to encourage fiscal that don't impede on independence. Maybe the Fischer/Hilderbrand idea of "going direct" and setting up automatic stabilizers for fiscal policy makers to tap into when needed.

This will require a longer post, but basic conclusion is CBs seem desperate to find new tools at ELB, not because the current ones don't work, but because the most effective ones make them institutionally uncomfortable. This focus on HH trust is just the current example.

End.