By Chris Middleton
WASHINGTON (MktNews) - Federal Reserve Chairman Alan Greenspan said Thursday the conduct of monetary policy has not been impeded by the greater transparency in Fed actions of recent years and will continue to evolve in the direction of more openness.
In a speech via satellite to participants in an economic policy conference sponsored by the St. Louis Federal Reserve Bank, Greenspan said it has always been difficult to balance transparency and monetary policy implementation, but that moving toward less secrecy is ultimately more effective.
"Simply put, financial markets work more efficiently when their participants do not have to waste effort inferring the stance of monetary policy from diffuse signals generated in the day-to-day implementation of policy," the Fed chairman said, in prepared remarks.
"And being clear about that stance has not constrained our ability to adjust the stance of monetary policy in either direction," he said.
But he acknowledged that a certain amount of privacy is needed for Fed decisionmakers to effectively debate and carry out policy.
"The undeniable, though regrettable, fact is that the most effective policymaking is done outside the immediate glare of the press," Greenspan said.
Nevertheless, this is not a justification of the levels of Fed secrecy of the past, Greenspan noted. Recent changes in Fed disclosure policy have been an improvement and it will continue to change in the future, he said.
"In recent years, we have achieved a far better balance, in my judgment, between transparency and effective monetary policy implementation than we thought appropriate in the past," Greenspan said.
"We have gotten to our present degree of transparency through an incremental process, and our disclosure policy will continue to evolve," he added.
Greenspan also focused on the key role played by price measures in the current determination of Fed policy. With the Fed geared toward keeping inflation in check, new measures will be critical down the road.
"Doubtless, we will develop new techniques of price measurement to unearth those units as the years go on. It is crucial that we do, for inflation can destabilize an economy even if faulty price indexes fail to reveal it," Greenspan said.
Measuring price stability accurately has become "increasingly more difficult", in particular pinning down "the notion of what constitutes a stable general price level."
Still, he does not favor a move to inflation targeting like some other central banks, including the European Central Bank, have done.
"For all these conceptual uncertainties and measurement problems, a specific numerical inflation target would represent an unhelpful and false precision," he said.
"Rather, price stability is best thought of as an environment in which inflation is so low and stable over time that it does not
materially enter into the decisions of households and firms." Greenspan made no immediate recommendations for changing price measurement, noting, "for the time being, our conventional measures of the overall price level will remain useful."