Working Paper: CEPR ID: DP13915
Authors: Stephen G. Cecchetti; Kermit Schoenholtz
Abstract: The Federal Open Market Committee (FOMC) publishes vast amounts of information regarding monetary policy, including its goals, strategy and outlook. By reinforcing the commitment to price stability and maximum sustainable employment, this transparency has helped improve U.S. economic performance in recent decades. Based on two dozen interviews with policy experts, we identify three objectives that guide our search for further improvements in communications practices: simplifying public statements, clarifying how policy will react to changing conditions, and highlighting uncertainty and risks. As examples, we propose a simpler post-meeting policy statement and the introduction of a concise Report on Economic Projections, the elements of which are mostly available in existing publications. A broader, systematic application of these objectives could also help the FOMC streamline other aspects of its communications framework.
Keywords: central bank communication; federal reserve; forward guidance; monetary policy; reaction functions; policy transparency; monetary policy credibility; central bank accountability
JEL Codes: E50; E58; E61
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| improved transparency in monetary policy communications (E52) | better economic performance in the U.S. (P17) |
| simplifying public statements (D72) | enhanced effectiveness of monetary policy (E52) |
| clarifying policy reactions to economic conditions (E60) | enhanced effectiveness of monetary policy (E52) |
| communicating uncertainty (D80) | improved public understanding of monetary policy (E60) |
| improved public understanding of monetary policy (E60) | better public response to monetary policy changes (E52) |
| clearer communication (L96) | reduced inflation and economic uncertainty (E31) |