Do not shoot at a chess player – Newspaper Kommersant No. 148 (7349) of 08/16/2022

In a series of reports by the Bank of Russia, a publication was published on one of the most interesting topics for the market – about the “surprises” of monetary policy (MP). The conclusions of the authors: the main role in the fact that the signals of the Central Bank are rarely accurately guessed by the markets is played by the “information advantage” – the Bank of Russia is able to make more accurate and complex forecasts and collect and process more detailed information about the state of the economy.

In the article “The Role of Communication and Information Factors in the Emergence of Surprises in the Monetary Policy of the Bank of Russia”, Central Bank employees Alina Evstigneeva, Yulia Shchadilova and Mark Sidorovsky have been analyzing the effectiveness of the regulator’s communications since 2014, analyzing common hypotheses about the origin of “surprises” — decisions not guessed by analysts market structures. Contrary to popular beliefs about the Central Bank’s desire to “punish” the market, such decisions by themselves not only bring neither the Bank of Russia nor the Ministry of Finance any direct or indirect benefit, but for the Central Bank, which, as part of inflation targeting, is interested in the most predictable communication with the markets , reduce the level of trust in it and the efficiency of transmission of the DCT.

First of all, the authors, stating that the decisions of the Central Bank in comparison with the decisions of the central banks of large economies are much less predictable, analyze separately the “surprises” for professional analysts and for the markets themselves (market structures are not obliged to be guided by the forecasts of their analysts and often do not follow them). Four well-known hypotheses about the causes of “surprises” were studied. These are the high role of uncertainty and information shocks, the generation of “surprises” by verbal communications of members of the Council of the Bank of Russia, the differences in approaches between the Central Bank and analysts in the placement of accents (miscommunication) and the “information advantage” of the Bank of Russia, expressed in the fact that it owns data inaccessible to the markets and puts them in his communication texts, but they are not decipherable by markets and analysts.

The period after the transition of the Bank of Russia to inflation targeting, the researchers had to divide into two stages – from 2015 to mid-2020, communications were “tuned”, from mid-2020 they stabilized. In the first period, “noisiness” (the first hypothesis) mattered (in the second, it didn’t), and the Central Bank’s verbal interventions often worked “incorrectly,” that is, they led to an incorrect result for the regulator, but then they worked correctly. The article suggests that this was facilitated by the publication of the key rate trajectory (which, however, “did not directly lead to an improvement in the predictability of decisions”, although it may do so later). Paradoxically, uncertainty and shocks “do not appear to be a statistically significant contributor to monetary policy surprises.” “To the greatest extent, the predictability of the decisions of the Bank of Russia is associated with the so-called informational advantage factor of the Central Bank,” argue the economists of the Central Bank after testing the hypotheses. This factor is most influential in the formation of “surprises” of monetary policy.

Note that this is the most inconvenient conclusion for everyone: the confidence of the markets in the Russian Federation that the Central Bank has some kind of hidden information is hardly reasonable, while the second possible component of this effect – more advanced predictive tools of the regulator – is quite obvious. At the same time, the recommendation of the Central Bank to “be stupid” is not as paradoxical as it seems: markets use (spending resources on this) analytical tools for their tasks, and “too smart for such an economy the Central Bank” is perhaps a problem. An alternative and more rational solution is recommended by the authors of the Central Bank – to “open the kitchen” of the regulator to an even greater extent. However, it is unlikely that anything will force the markets to make more accurate (and more expensive) forecasts if this does not give them competitive advantages and profits: in an uncompetitive environment, this solution is of limited effectiveness.

Dmitry Butrin