Working Paper: NBER ID: w13932
Authors: Alan S. Blinder; Michael Ehrmann; Marcel Fratzscher; Jakob de Haan; Davidjan Jansen
Abstract: Over the last two decades, communication has become an increasingly important aspect of monetary policy. These real-world developments have spawned a huge new scholarly literature on central bank communication -- mostly empirical, and almost all of it written in this decade. We survey this ever-growing literature. The evidence suggests that communication can be an important and powerful part of the central bank's toolkit since it has the ability to move financial markets, to enhance the predictability of monetary policy decisions, and potentially to help achieve central banks' macroeconomic objectives. However, the large variation in communication strategies across central banks suggests that a consensus has yet to emerge on what constitutes an optimal communication strategy.
Keywords: Central Bank Communication; Monetary Policy; Financial Markets
JEL Codes: E52; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Effective communication (L96) | Market expectations (D84) |
| Market expectations (D84) | Asset prices (G19) |
| Effective communication (L96) | Short-term interest rates (E43) |
| Better communication strategies (L96) | Predictability of monetary policy (E52) |
| Predictability of monetary policy (E52) | Volatility in financial markets (G17) |
| Poor communication (Y70) | Increased uncertainty (D89) |
| Different communication strategies (L96) | Effectiveness in managing expectations (D84) |