– The purpose of this paper is to explain why central banking as a practice needs to be based on everyday language and communication because a central bank must be able to act flexibly. The meaning of a central bank’s language and communication is not a linear transferred meaning from the sender to the receiver. Language is not the gateway to transmitting a pre-given meaning. Whereas the meaning of a coded language is rooted in a pre-defined system independent of changing environment and context, everyday language is not. Expectation-building cannot be anchored in an artificial system such as formal language, codes and deductive premises based on formal language. In guiding expectations of economic agents, a central bank is a part of its own context through the language it uses in both its communication and in its policy of information disclosure concerning its own risk assessment.
– The paper explains the constitutive function of language for common understanding in central banking and monetary policy.
– The paper contributes to the literature on central bank communication and transparency.
– The interaction between the markets and the central bank is understandable within a particular history and context which also helps to build up or to restore confidence in monetary transactions and relations.
