 Yes, you heard correctly. That was a reggae song about inflation. It was penned by the Bank of Jamaica in 2020 to explain inflation in a way that everyone can understand. Definitely a first from a central bank. But not that long ago, central banks were shrouded in mystery. They were very opaque in the way they communicated. Central bankers would say as little as possible and only speak to their closed circles. They didn't even make their rate decisions public. They'd basically tell markets and people would find out what they decided via market rates. But those days are long gone. Central banks have opened up in a huge way and today they reach out to people in different ways, from explaining monetary policy decisions in press conferences, reaching younger people on Instagram to even writing songs. But why is it important that central banks communicate? What should they talk about? And who should they address? You're listening to the ECB podcast, bringing you insights into the world of economics and central banking. My name is Katie Ranger. I'm joined today by two colleagues, Gabriel Gluckler, Communication Advisor, and Siria Anjino, who does research on trust here at the ECB. Both of you, welcome back to the podcast. Great to have you here. It's great to be back. Thanks. Nice to be back indeed. Gabriel, I'll turn to you first. Now, communication has become a really important topic for central banks in recent years. So much so that when we carried out a big review of our monetary policy strategy recently, communication was one of the key aspects that we looked at. Now, Gabriel, you worked a lot on this, on the review and specifically on the part on communications. What things did you look at and what made you look at communications at all in the first place? In our strategy review, what we really wanted to do is make sure that our monetary policy strategy is fit for purpose in a completely changed world. And as our President Christine Lagarte said, we really wanted to leave no stone unturned. Because in many ways, our world has really changed beyond recognition. And that's especially true for the world of communications. Now, back in 2003, the last time we did our strategy review, well, think back of those days. There was no smartphones. There was no Twitter. There was no Instagram. Most people got their news on TV or on newspapers. There wasn't much less of activism or polarization. There was less demand for transparency. Now, all of this has changed. And that also meant that we have to look at ourselves and the way we communicate. Who are we trying to reach and through what channels? And that is precisely what we did in our strategy review. Now, a key element there was that we are now in a world where we have a wealth of information that confronts a poverty of attention. If you think that the average attention span is like eight seconds, which is kind of less than a goldfish. So there's a lot of competition for attention out there. Now, we might not like it, but as a central bank, if you want to get our points across, we are in this as well, one way or another. So we had to look at the way we communicate and who are we reaching and how. And then we had dedicated work stream to actually look at this and assess the latest research and so on and so forth. Beyond that, we also went out and asked the people through a whole series of listening events. And we wanted to know what their concerns are. What do they expect from their central bank and how they want to interact with us. And the message we got was pretty clear. They want us to communicate with them in a clear and consistent manner. They want to understand what we're doing and why it matters to them. And they certainly would like to stay in touch with us and continue the interaction. A wealth of information confronts a poverty of attention. I really like that saying. So basically the way that people had consumed information had changed completely. And we needed to address that. And we've also been listening to people. So they want clear explanations of what we do and how it affects them. But what have you actually done with those findings? Have we changed how we communicate our monetary policy decisions? Yes, we have. And in that shell, I think we've now made absolutely clear that we communicate both for the markets and for the people. So expert in financial markets remain a very important audience for central bank. And they're the ones that traditionally that central banks would speak to? Absolutely. And it's important that they understand us and we know that they understand us pretty well. So we've got to keep up the good work, so to speak on that front. But we've decided to broaden our efforts to be better understood by the people, by the people whom we serve, after all. And that means complimenting that expert communication with an additional layer that gets across what we want to say to people who are not necessarily experts. And concretely, what we've done, we have basically revamped the way we present our core policy. In the old days, we had an introductory statement that was very technical, very heavy on jargon and quite long. And we replaced this with a new monetary policy statement that is easier to understand, is more of a narrative and is also more streamlined. This is the statement that the president gives at the press conference, where we explain our monetary policy decisions? Correct. It's read out at the beginning of the press conference and sets out to speak the view of the of the governing council of how we see the economy and how from that analysis flows why we've decided what we've decided. So really important information for everyone out there? Absolutely. And it's important that people understand that. But we now decided that we want to complement this with an additional layer and something that we call our monetary policy statement at a glance, where we have really the core messages in accessible language, very short, complemented by attractive visuals. And importantly, that is available in the 24 languages of the European Union. So people throughout the Eurozone and the European Union, in fact, can read in their own language what has been decided and why that matters. And that's one of the challenges of the European Union, trying to explain a concept in all the different languages. I mean, this multilingualism is certainly something that we come up against time. All the time. Absolutely. And beyond that, we've also committed to turning our communication into a conversation. So the good experiences that we had with the listening events, we want to continue. We want to learn from the people what they expect and we want to be in a conversation where we can also explain what our role is, what the central bank can do, and what it cannot do. That's equally, equally important. So we want to stay in touch with people and not just us at the European Central Bank, but also at the national central banks of the Euro system. And maybe one final point on the strategy review is if you want, as a first example of what it means to be clear and consistent, we've come to a new definition of our objective and we've moved from a definition of price stability was below but closer to percent, which some people weren't quite sure what precisely it meant. We've moved to something that's much more clear, much more straightforward. We have an inflation target of two percent. It's symmetric. It's clear. And I think that shows that we don't just say we're committed to better communication. We're actually doing it. Okay. So there's a definite shift by central banks, ourselves included, as you've explained, towards simpler communication and also transparency, being more transparent about what we do and why we do it. Now, we've already managed to move from secrecy as I referenced in the introduction to transparency. And as you've explained, Gabriel, communication has become an increasingly important tool. We don't just talk about what we do. We also talk about why we do it. And we're actually more open about how we arrive at certain decisions. We also talk about how we expect our policy to develop in the future. So basically our medium term plan via what we call our forward guidance. And this has really become a core part of the monetary policy toolkit for central banks across the world, not just for us. Now, Gabriel, we've discussed how things are changing, how the world has changed, and how we've come to where we are today. But I'd like to understand a bit more about why it's important that central banks communicate at all in the first place. Can you walk me through that a little bit? Absolutely. I think we have three main reasons. The effectiveness of our policy, the accountability of us as an institution, and the trust of the people that we need for our job. Let me take that one by one. Words matter and they matter big time for a central bank. What a central bank says has an impact on how markets react, how people act in the economy. And if you think back of July 2012, Mario Draghi's speech, whatever it takes, for many that is the power of words uttered by central bankers. Absolutely. So, precisely because what the central bank says has such impact, it can drive markets up or down, it can generate gains or losses, it influences the economy, it has an impact on whether people have jobs or don't have jobs, how their wealth develops. That is why central bankers, and you spoke about this earlier, have been very, very careful and very guarded with their communication. Because as the blockbuster movie says, with great power comes great responsibility. So, Spider-Man. Yes, yes. Peter Parker. So, if central banks communicate well, that will make their policy more effective. And how does that work? It comes first and foremost through credibility, when central banks say what they do and do what they say. It also comes from being clear and consistent about what they aim that, how they will use their policy instruments to get there, and how their actions are eventually transmitted to the real economy and have an impact out there. So, and if financial markets and all actors in the economy, all of us, if we make this part of our own thinking about how the economy develops, if we make this part of our own expectations, there really is quite a bit of the heavy lifting of what a central bank aims to achieve. You spoke about forward guidance. That's precisely one of these things. When if we let financial markets know where we expect interest rates to be in the future, we already can bring about a change in the price of borrowing for businesses, for families, for people. That's kind of forward guidance. In that sense, how we talk and communication has become a tool of policy in itself. So, that's kind of where the heavy lifting part is taking place. So, it's all about helping people to know what to expect by giving them that information. And they will then adjust their behaviour accordingly, which will also in turn help our policies to work better. Now, we know that people need to know about our decisions for them to work, as we've just explained, but Gabriel, the truth is that the vast majority don't, do they, right? That's right. It's something that's called rational inattention. I really, frankly speaking, especially when inflation is low and stable, as it has been in the euro area for many years, price changes in the economy move into the background of people's lives, and at last they can focus on what's important to them, their families, the things they feel passionate about. And in that sense, it doesn't make sense. It's not rational. It's not rational for them to invest time and trying to understand a complex thing like monetary policy and how it works. But that changes when inflation and the role of central banks moves back to centre stage. And that is when it would be important to understand how monetary policy works, what a central bank can, and as I said earlier, and what it cannot achieve with its tools. It sounds as if this communication is kind of all about monetary policy and, dare I say, it sounds a little bit self-centred, but is there more to it? Of course, there's more to it. I was hoping that would be the answer. I've started with the thing that's closest to our heart. But of course, as a public institution in a democracy, we need to be accountable to the people. And that's especially important for an independent institution like a central bank. They need to be transparent about their actions and how what they do fulfills the mandate that's been given to them. After all, that's what they may be made independent for, to do a specific job. And that's where communication is super important for accountability. And finally, and that maybe goes kind of lifted even higher, it is maybe the most important goal of our communication is trust, is to build trust. Because as a central bank, our prime product, the currency that we issue, is based on trust. After all, it's a piece of printed paper that has very little intrinsic value. In a sense, it's like a promise. And there's actually some banknotes in some countries that actually have written on it, I promise to pay. And in many countries, on the banknotes, you also have the signature of the boss of the central bank. For us, it's a signature of Christine Lagarde on the Eurobank note. That is kind of a proof that underscores that promise. And for that promise to be honored, and for our money to retain its value, people need to trust it. Adam Smith, the father of modern economics, he once said, all money is a matter of belief. And for that belief to be sustained, people need to have trust. And that trust is also built through good communication and being clear and being transparent. Okay, so it's about making sure our policies have the right impact. It's about accountability. And it's about trust, that all important trust. Let's get a bit more concrete. What does it actually mean in practice? What kind of things do we do to achieve these three things that you've talked about? We at the ECB are, also by international comparison, a very open and transparent central bank. We communicate a lot. For instance, we were among the first central banks in the world to present our decisions in a press conference immediately after the decision had been taken, to explain in real time what the reasons behind those decisions are, and to be open for questions from the media. By now, many other central banks are doing the same thing. We have a bit of a trailblazer on this one. It's just the norm now, isn't it? Correct. We also publish what we call the monetary policy accounts, where everyone can read how the discussion in the governing council evolved, what were the pros and cons, how were different arguments being weighed that eventually led them to the decision, but also those who maybe had different arguments. I think that's a very important piece of showing how we come to our decisions. We also publish forecasts, we publish models, we publish analyses. So basically, anyone outside has the same inputs and can see on what basis the ECB's governing council eventually takes its decisions. And of course, we continuously expand our efforts to explain to a wider public what we're doing and why that matters to them. And much of it, incidentally, we spoke early about multilingualism in the 24 languages of the EU so that they can find out, and we have many different channels. And finally, we're very keen on the direct interaction with the people, to listen, but also to answer questions. So there's a lot more that we do, but it just gives you an idea of some of the elements that we're doing here. I already know from our social media accounts, I mean, that's a completely new audience that maybe 10, 12, 15 years ago wasn't there. And that's really almost as direct as you can get without inviting people into your home, into your building, essentially. But if I take that promise of openness to its logical conclusion, if you will, shouldn't everything that the ECB does be totally transparent so that everyone can see what's going on also behind closed doors? I mean, will I be watching live streams of the policy meetings? So not just the decisions afterwards, but the meetings themselves on Facebook or Instagram in five, 10 years. Is that where we're going to end up? Putting out ever more information and swamping the public with ever more details and communication, I'm not sure that's helping the understanding. Because there can also be too much communication, too much noise that ends up drowning out the real message. At some point it becomes overwhelming that there's just too much information out there, especially for the ones who don't really know that much about what we do. Correct. Correct. So I think what I come down on is to say more is not always better. A central banker once said, transparency is only helpful if people can understand what you're actually saying. So just putting out more and more in the language of people don't understand will not help the broader understanding. So that's a balance we have to strike. Well, thank you very much for this very interesting conversation, Gabriel. Now, we've already mentioned trust a few times and I'd like to focus a bit more on what we actually mean when we talk about that term. Celia, I'll turn to you now, as you've done a lot of research on this topic. Now, it's worth mentioning that we're mainly talking about institutional trust in this situation. So really about the trust in our central bank as an institution. And we define this formally as the belief that the institution will carry out its mandate with competence and integrity, acting in the broader interest of the citizens it serves. Now, Celia, we know what trust is, but how do you build it? What's the recipe for trust, if you will? So your definition already mentions a couple of ingredients. I would say you mentioned competence. Now, in order to be trusted, ECB has to perceive as an institution who's able to do its job, who has the expertise to perform its mandate. And Gabriel mentioned this before. Trust is important for the success of our monetary policy, but success itself perceives success builds trust in return. So it's a virtuous cycle, I would say. More success leads to higher trust in the institution and higher trust in the institution allows us to do a better job when it comes to monetary policy. This is mainly what financial markets focus on, competence. But for the general public, the citizens you mentioned, this is not enough, I would say. So for the general public, it's also important to know that the institution, the central bank, acts in their own interest. Indeed, you mentioned integrity, honesty, responsibility. All of this comes up to the second dimension, the dimension of values is the second ingredient I would say in our recipe. So competence and values up to here, it seems like it is simply trust in a professional figure. You can trust your mechanic to be competent, hopefully. You can fix your car. But you also have to make sure that the party buys are in your interest in a sense. But we are talking about a European institution. So of course, another ingredient to our recipe is European attitudes. So if people believe in a European project, of course, they are going to be more likely to trust the ECB, the same way they're going to trust other European institution more likely, I would say. The success of the EU project is also another factor that plays an important role when it comes to trusting the ECB. Culture, social demographic characteristics, economic status, there are all ingredients in this big recipe that is trust. More educated people, for example, tend to trust institutions more in democracies and the ECB is no exception in this case. So it's really tricky to gain that trust in essence because there are so many different things that go into it and some of them are completely outside of at least our control. So I guess you've got some data on how we're doing. How much do people trust the ECB? So according to the latest euro barometer data, 41% of respondents in the euro area trust the ECB, 45% do not and 14% of people don't know or prefer not to answer. Now, of course, this is not where the ECB would like to be. There's still a lot to be done. But if we look back at the levels of trust during the sovereign debt crisis, of course, we came a long way from those years when trust plummeted for all European institutions and media as well. So good levels, but there's still work to be done, shall we say. Now, that's actually something you've looked at a lot in your work, how central banks build trust. What have you found? Well, we found that there is not a single type of trust we have to consider. In our research, Stefania Seggler, a colleague of mine and I, we identified two different types of trust, instinctive trust and reflective trust. Instinctive trust is not the spot judgment about the trustworthiness of the ECB in our case. It's a gut feeling. Reflective trust instead captures a more pondered opinion about ECB, not necessarily more informed opinion, but simply we created the occasion for people to think a little bit more about the ECB. I mean, the ECB is a supranational institution. It's not something you think about in your everyday life, I would say. No, generally not. Exactly. So we compare the levels of instinctive and reflective trust. Now, every institution would love to see that as people think about their role, their work, what they do for people, that they would like to see that the levels of trust increase. But unfortunately, we find the opposite. We find that the more people think about the ECB without external information again, but the more they lose trust in the institution. And let me say this is driven by a specific group of people. So it's not true for everyone, it's true only for one group of people. These are women and in particular women that feel like they don't know enough about the ECB. And we're talking about 80% of women. So high. Indeed, indeed. Now, we'll link to this research in the show notes for all those listening, but, Siria, how did you do it? What was the methodology? Did you ask someone and then ask them again later or was it different groups? It's actually a simple way. We use a survey experiment. So it's an experiment. So it's easy to understand where the causality is. But instead of having an experiment in a laboratory, we use the representative sample of the population. We have our survey that asks about ECB, it asks where people hear about ECB, what do they know about ECB, what are the tasks, the mandate and so on. And what we did was to randomly assign the respondents to one of three different groups. The first group faced the question on trust at the beginning of the survey. So immediately, this is our measure of instinctive trust. First in, first question. Exactly. So immediately. The second and the third group faced the question on trust in the middle and at the end of the survey, respectively. So what we did was simply in the end to compare the levels of trust across these three different groups. And we saw that the more people pondered about the ECB without receiving any information and the less likely they were to trust the institution. And as I mentioned, this is true for women with low self-assessed knowledge of the ECB. So the way we interpreted this result is that these women over the course of the survey realized that they don't know the institution and they lose trust. But in the end, why should they trust an institution that they don't know? Absolutely. Yeah. And so it's this reflective trust that we need to work on a bit more. How can you do that? What's the solution for kind of targeting that reflective trust over the instinctive trust, shall we say? Yeah. We showed that instinctive trust in it is very fragile. So when it took the span of a survey to erode this kind of instinctive trust, we have to make that more robust. How to do that? Well, as usual, we have to improve people's understanding and we also have to improve people confidence in his understanding. Financial literacy ideally would be the starting point. Of course, financial literacy would not be beneficial only for trust in ECB but for people's welfare more in general. But if we focus on what the ECB can do, I go back to what Gabriel mentioned earlier. We have to explain in an engaging manner. We have to explain in simple terms. We often implicitly assume that the only people that would benefit from a simpler communication are non-specialized audience or lay people, people that don't know much about economics. But actually research has shown often that even the more sophisticated audiences, so people with economic background, financial news word journalists, they also benefit from simpler communication. That's interesting. I've never thought about it like that, that also explaining our policies more will also benefit those that already know about them such as journalists. What we find, for example, is that when speeches and the monetary policy statement indeed are easier to read, financial news word journalists are more likely to write about the ECB so we can reach more people with our messages. If we manage to simplify our messages without making them banal or trivial, of course, we can actually reach more people than we usually think of. Thank you so much, Sirius. This is really interesting topic. Before we wrap up, we always have a question that we ask all our guests on the podcast. That's for a hot tip linked to the topic we're discussing today, so in this case, communication. Sirius, we've already been talking. I'll turn to you first. Would you have a hot tip for our listeners today? Sure. We started with a reggae song from Bank of Jamaica. How could we forget? I will close the circle by mentioning another song about Central Bank, but not from a Central Bank, which is, I guess, not the usual. It's a song called Toot Fairy by Nano War of Steel. If you think that words like QE and Lander of Last Resort doesn't fit well with a metal song, you might want to have a listen to this. A metal song with reference to quantitative easing. I have never heard it and never thought. I would, but I'm very keen to check that one out. Thank you, Sirius. Gabriel, how can you beat that one? Very difficult, but what I'm trying to do is to chime in with what Sirius said about how important it is to get complex things across in a simpler language and that it can be done is shown by my little tip and that is the movie The Big Short of 2015, which sent us around the subprime mortgage crisis in the US that in the end turned out to be what we now know as the great financial crisis, so nothing trivial. But in there, of course, is this iconic scene where actress Margaret Robbie sits in a bubble bath and explains in very simple terms some of the most complex financial instruments and the processes that led to the subprime crisis and eventually it's unraveling. The scene, apart from being fun, it shows that it can be done. You can look at structured finance and find words and ways of explaining them to make them accessible, so we must not capitulate in front of complexity. Now, I'm not sure the bathtub will become a standard element of ECB communication in the years to come, but I find the very fact that it can be done at the moment in time when we, as we started this episode, when we say the new frontier of central bank communication is the wider public, and that means we have to keep up these efforts to say complex things in a way that people understand it, and so watch that scene and think about, you know, yes, it can be done. I find it an inspiration. Well, that's a great message to end on. Thank you so much, Gabriel. Thank you, Siria, as well. Thanks to both of you for giving us your insights. Thank you. It's a pleasure. Well, that brings us to the end of this episode. Check out the show notes for other podcasts and further reading on the topic of central bank communication. You've been listening to the ECB podcast with Katie Ranger. If you like what you've heard, please subscribe and leave us a review. Until next time, thanks for listening.