WASHINGTON (Reuters) – The European Central Bank needs to improve how it communicates policy intentions and uncertainty, but copying the U.S. Federal Reserve’s “dot plot” projection method is not a desirable option, Bundesbank President Joachim Nagel said on Tuesday.
The ECB plans to conduct a strategy review next year, and communication is set to be a key topic since the era of forward guidance is largely over and central banks are looking for better ways to signal their intentions.
Some policymakers have said it is worth looking at the Fed’s dot-plot approach, where each individual policymaker makes their own policy rate projection and these are then plotted into an anonymised graph, giving the tool its name.
Nagel, however, joined an already long list of policymakers arguing against the dot plot, saying it could jeopardize independence while the improvement in the bank’s signalling was not entirely clear.
“I do not see a compelling case for introducing dot plots for the Eurosystem,” Nagel said in a speech at Harvard University.
The argument is that once you start publishing dots, policy watchers will try to identify individual policymakers behind them and put pressure on governors to advocate their national interests over that of the 20-nation bloc.
“This could potentially influence the Governing Council’s independence,” Nagel said.
Instead, the ECB should refine its current signalling tools and use the upcoming review for this, Nagel argued.
“One might be to enhance the communication of our existing measures of uncertainty,” Nagel said. “Another might be to develop new measures such as scenario and sensitivity analyses, as well as improved fan charts.”
(Reporting by Balazs Koranyi; Editing by Hugh Lawson)
