Question on Central Bank comunication recent, central, between, regarding, statements

Penny-wenny

In a recent discussion at a Board of Directors meeting of Econometrics Inc., two statements were made regarding the importance of communication between a central bank and the financial markets. The statements were:
Statement 1: “Poor communication by central banks of their intent can lead to uncertainty, instability in the financial markets, and unanticipated policy decisions that can disrupt financial markets.”
Statement 2: “Central banks around the world should communicate clearly and transparently to the financial markets that they will preserve their policymaking flexibility when threats to price stability emerge.”
Are Statement 1 and Statement 2 as made by the Board members correct?
Statement 1 Statement 2
A) Correct Correct
B) Correct Incorrect
C) Incorrect Incorrect
D) Incorrect Correct
I am asking you in regard to statement 2.
Alex.

rohitdoshi

I’d say Statement 1 is a correct statement.
I’d say the second statement seems correct too. A central bank, committed to preserve price stability, and making it clear to the market, would allow market participants to easily understand and adjust in anticipation of a central bank measures toward price stability preservation. The market would move in the desired direction, making the policy easier to implement, with lesser effort from the central bank.
So, is it A?

leadcfa

Statement 1 is a correct statement.
Statement 2 is an incorrect statement.
Answer = B.
I think I’m right.
So what’s the answer?

willsucceed

I think they are both correct. It’s all about credibility. If the govt lacks credibility when they say that they are going to do something no one is going to believe them and the situation is only becomes worse. At least that’s what I remember reading from the text.

kmf229

If the Fed came out with a statement today “we are preserving our policy making flexibility” wouldn’t everyone just scratch their heads and keep going? Who cares?

suyash1989

Yea but that’s not what the statement says. The statement says that the Fed should communicate clearly and transparently to the financial markets so that when they do come out and say something, it’s believable therefore helping them to maintain their power to be flexiable when making policies.
either way that doesn’t make sense lol, after reading it again, I can’t see how that helps the fed be flexiable when making policies.
I’m confused now and I hate econ.
What’s the friggin answer? lol