Working Paper: CEPR ID: DP15603
Authors: Annette Vissing-Jorgensen
Abstract: Starting from a set of facts on the timing of stock returns relative to Federal Reserve decision-making, I argue that informal communication – including unattributed communication -- plays a central role in monetary policy communication. This contrasts with the standard communications framework in which communication should be public and on-the-record because it serves to ensure accountability and policy effectiveness. I lay out possible benefits of using unattributed communication as an institution, but these should be weighed against substantial costs: It runs counter to accountability to use unattributed communication, causes frustration among those trying to understand central bank intensions, and enables use of such communication by individual policymakers. Unattributed communication driven by policymaker disagreements is unambiguously welfare reducing, because it reduces policy flexibility and harms the central bank’s credibility and decision-making process. I suggest that central banks resist unattributed communication via expensive newsletters and increase consensus-building efforts to reduce disagreement-driven unattributed communication.
Keywords: monetary policy; communication; stock market
JEL Codes: E5; G12
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Informal communication (L96) | Market expectations (D84) |
| Informal communication (L96) | Stock returns (G12) |
| Disagreement among policymakers (D72) | Unattributed communication (Y70) |
| Unattributed communication (Y70) | Policy flexibility (G52) |
| Unattributed communication (Y70) | Central bank effectiveness (E58) |
| Informal communication (L96) | Market perceptions (G19) |
| Timing of stock returns (G17) | Informal communication events (J46) |