Elsevier

Economics Letters

Volume 113, Issue 1, October 2011, Pages 70-72
Economics Letters

Mumbling with great incoherence: Was it really so difficult to understand Alan Greenspan?

https://doi.org/10.1016/j.econlet.2011.05.034Get rights and content

Abstract

We show how most Humphrey–Hawkins testimonies by Paul Volcker and Alan Greenspan were difficult to follow, implying the general public needs information through different, more accessible communications. Still, it is not obvious that Greenspan was increasingly ‘mumbling with great incoherence’.

Highlights

► Clarity is a key element of central bank transparency. ► Humphrey–Hawkins testimonies were often difficult to follow. ► Readability measures should be carefully interpreted.

Introduction

The conventional wisdom is that communications by Alan Greenspan–Federal Reserve Chairman from 1987 to 2006–were rather inaccessible. Greenspan himself suggested as much by stating that as a central banker he had ‘learned to mumble with great incoherence’.2 However, during Greenspan’s term as Chairman, important changes in Federal Reserve transparency occurred. In 1994, the Federal Reserve started announcing changes in the federal funds rate. Since 1999 a statement has been issued after each policy decision. Was Greenspan really ‘mumbling’ during these years, despite the increase in transparency?

To study this further, we analyze the readability of statements given by Greenspan at the Congressional Monetary Policy Oversight hearings (the Humphrey–Hawkins hearings). Since the late 1970s, these testimonies have been an important Federal Reserve communication instrument. Readability is measured using two statistics–the Flesch reading ease score and the Flesch–Kincaid grade level–which have been widely applied in other fields (Clatworthy and Jones, 2001, Paasche-Orlow et al., 2003). Jansen (2011) uses them to show how greater clarity of central bank communication goes hand in hand with less volatility in financial markets. One benefit of these criteria is their objectivity; they are purely based on textual characteristics: the number of words, sentences and syllables.

As a benchmark, this paper analyzes testimonies by Greenspan’s predecessor, Paul Volcker. Comparing their testimonies seems to confirm the conventional wisdom that Greenspan was ‘mumbling’. Also, over time, the clarity of Greenspan testimonies actually decreased. However, these conclusions are sensitive to the inclusion of various covariates–such as content and the state of the economy–which illustrates how communications should not be analyzed without accounting for the context in which they occurred. It is by no means obvious that Greenspan was increasingly ‘mumbling with great incoherence’. One could even argue that the increase in transparency was bound to decrease clarity. Once a central bank strives to be more open and provides more technical details about its policies, the wording of its communications might well become more complex, which would be reflected in the readability statistics.

This invites the question what central bank transparency really means. Even if a central bank communicates regularly, but does so opaquely, it can hardly be called transparent. Research on central bank transparency (see Geraats, 2002, Eijffinger and Geraats, 2006, Dincer and Eichengreen, 2007) would do well to include measures for textual clarity in future work. In fact, the readability statistics classify most testimonies–by Greenspan as well as Volcker–as difficult. Although the testimonies are presumably targeted at specialists, this implies that the general public needs information through different, more accessible channels. Recent research indeed suggests that the public’s knowledge on monetary policy is imperfect (Van der Cruijsen et al., 2010).

Section snippets

Methodology

The first readability measure is the Flesch (1948) reading ease score, which is calculated as 206.8351.015(#words/#sentences)84.6(#syllables/#words) The intuition is that many words per sentence or many syllables per word decrease readability. If someone has to process a text with long words or sentences, it will be harder to grasp the message. Texts with Flesch scores above 70 are considered very easy to read, whereas texts which score below 30 are seen as very difficult. The second

Results

Fig. 1, Fig. 2 show how the readability measures classify almost every testimony as difficult to read. For the Volcker testimonies, the Flesch scores range between 30 and 40. For the Greenspan period, the Flesch scores are often below 30, meaning these testimonies were very difficult to follow. The Flesch–Kincaid measure indicates that between fourteen and sixteen years of education were needed to comprehend testimonies. Presumably, the testimonies are targeted at an audience of specialists.

Conclusions

This paper has analyzed the clarity of testimonies by Alan Greenspan and Paul Volcker. Although simple readability statistics suggest otherwise, it is by no means clear that Alan Greenspan was increasingly ‘mumbling with great incoherence’ in his testimonies. This becomes apparent when controlling for content as well as the context in which communication took place. Still, most Humphrey–Hawkins testimonies are classified as difficult to follow, implying that the general public needs to be

Acknowledgments

I received useful comments from seminar participants at de Nederlandsche Bank, the University of Amsterdam, and the 40th MMF Group conference as well as Jakob de Haan, Michael Ehrmann and the referee. Any errors or omissions are my own responsibility. Views expressed in this article do not necessarily coincide with those of de Nederlandsche Bank.

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