[...]...2 Central Banks and Coded Language and Sack 2003; Rudebusch and Williams 2006) This implies that the effectiveness of a central bank cannot be separated from language interactions and, hence, from ‘language games’ Moreover, communication cannot be reduced to the disclosure of information by a central bank.1 To put it more precisely, monetary policy and a central bank’s communications... is created by the central bank based on certain principles and, foremost, on the acceptability of its role in society A central bank’s macroeconomic responsibility is to provide price stability and, hence, stable money throughout the whole of the economy Credit is created by teamwork or interaction between central banks and commercial banks Commercial banks borrow money from central banks in order to... fourth consideration examines the risks and benefits of coded language by emphasizing communicative interaction as language-based interaction – that is, interaction based on everyday language However, this text subscribes to communicative interaction as being aimed at a 9780230_232280_02_int.indd 5 3/31/2011 2:45:41 PM 6 Central Banks and Coded Language common understanding and, therefore, as being opposed... the central bank and commercial banks regarding the concepts of money, and of money demand and supply in the economy Chapter 2 introduces a conceptual framework for communicative interaction, which combines the three dimensions of information, interaction, and context To understand how monetary policy works through the market, one needs to acknowledge the processes of perception and the understanding... because the coded language is defined as being independent of changing environments and contexts A coded language approach to central banking, regardless of its context, culture, and constitution, lacks credibility and reputation A coded language cannot fulfil the central banks genuine task of guiding market expectations My point is this: the uncertainty would be elevated by the use of a coded language... meaningless object Also, this meaning and its understanding are embedded in action Emphasis upon coded words implies the danger of misunderstanding and of veiling the context in which a central bank acts The attempt to rely upon a coded language neglects the conditions under which the central bank acts to carry out its mandate In Chapter 5, I emphasize that a strategy of a coded language (or purely formal... science, changes all the time and, hence, the economic background also shifts constantly We base all the judgments with which we formulate decisions and actions – and regard 9780230_232280_03_cha01.indd 11 3/31/2011 2:45:49 PM 12 Central Banks and Coded Language concepts, meanings, and methods –upon variable social contexts Therefore concepts, conceptual investigations, and methods must be flexible... silence and opacity Today, modern central banks no longer perceive themselves as temples of secrecy rooted in the realm of metaphysics and unable to communicate and explain their procedures This is true for a central bank as an institution interacting with the financial market which, itself, is not invariant As an institution, a central bank acts within historical and contextual forms of life and norms... and central banking Moreover, they set in motion a compelling shift for central banking and monetary policy towards paying attention to guiding expectations in order to stabilize a paper money standard Central banking and monetary policy rules have become a distinct consideration of economists and theorists (Goodfriend 2003) This has provoked new questions, distinct methods, differing viewpoints, and. .. scholarly community The abandonment of the gold–dollar standard was also an abandonment of the theoretical illusion of stabilizing the functions of a currency by referring to constraints as given by a metallic standard The radical changes for central banking and monetary policy have evolved out of new perceptions and responsibility for price stability As history reveals, central banking and monetary policy . 3/31/2011 2:45:34 PM3/31/2011 2:45:34 PM Central Banks and Coded Language Risks and Benefits Elke Muchlinski Economist (& Lecturer, Visiting Professor), and Philosopher, Free University, Berlin 9780230_232280_01_prex.indd. transparency and accountability are not optional, but are required of independent central banks. The independence of modern central banks does not infer that central banks exist independ- ently. Central Banks and Coded Language the participants of the financial markets and the central bank. Therefore the language in use functions as an anchor for the expectation- building process and