Can central bank communication help to stabilise inflation expectations?

This chapter starts by tracing trends in central bank transparency. It reports key policy changes by some of the world’s most important central banks: the FOMC, the European Central Bank, the Bank of England, and the Bank of Japan. The second section reviews the theoretical and empirical literature on central bank design, paying close attention to the role of committee size, composition, and decision-making protocol, and classifies central banks around the world according to these features. The third section outlines the aim of central bank communications: to broadcast news and to reduce noise. The author argues that while previous literature has examined both committee design and central bank communications, it has done so in isolation. By putting these two topics together, the chapter argues that we can better understand, first, how different types of committees may be better at communicating and, second, how communication affects households’ inflation expectations and inflation.

Download Full-text

Qualitative and quantitative central bank communication and inflation expectations

The B E Journal of Macroeconomics ◽

10.1515/bejm-2016-0024 ◽

2016 ◽

Vol 17 (1) ◽

Cited By ~ 2

Author(s):

Paul Hubert

Keyword(s):

Principal Component Analysis ◽

Central Bank ◽

Instrumental Variables ◽

Principal Component ◽

Inflation Expectations ◽

Governing Council ◽

Qualitative And Quantitative ◽

Central Bank Communication ◽

Instrumental Variables Estimation ◽

Positive Effect

AbstractWe aim to investigate the simultaneous and interacted effects of central bank qualitative and quantitative communication on private inflation expectations, measured with survey and market-based measures. The effects of ECB inflation projections and Governing Council members’ speeches are identified through an instrumental-variables estimation using a principal component analysis to generate relevant instruments. We find that ECB projections have a positive effect on current-year forecasts, and that ECB projections and speeches are substitutes at longer horizons. Moreover, ECB speeches and the ECB rate reinforce the effect of ECB projections when they are consistent, and convey the same signal about inflationary pressures.

Download Full-text

Central bank’s perception on inflation and inflation expectations of experts

Journal of Economic Studies ◽

10.1108/jes-07-2014-0116 ◽

2015 ◽

Vol 42 (6) ◽

pp. 1142-1158 ◽

Cited By ~ 2

Author(s):

Gabriel Caldas Montes ◽

Rodolfo Tomás da Fonseca Nicolay

Keyword(s):

Monetary Policy ◽

Central Bank ◽

Inflation Targeting ◽

Generalized Method Of Moments ◽

Ordinary Least Squares ◽

Response Analysis ◽

Inflation Expectations ◽

Content Type ◽

Vector Autoregressive ◽

Central Bank Communication

Purpose – Due to the fact that studies on central bank communication in emerging countries are still scarce and there are few studies related to the influence that central bank’s perspectives about the state of the economy have on inflation expectations in emerging economies, the purpose of this paper is to contribute to the literature in the following aspects: it proposes an indicator of the central bank’s perception of inflation based on the minutes of the COPOM meetings, and, it analyzes the influence of central bank communication on expert inflation expectations through such indicator. Design/methodology/approach – Due to the fact that the perception of the Central Bank of Brazil is not directly observable, it is measured through the fuzzy set theory by an indicator that captures the informational content of the minutes of the COPOM meetings. The empirical analysis uses ordinary least squares, the generalized method of moments and vector-autoregressive through impulse-response analysis. Findings – The findings suggest that the expectations of financial market experts react according to the content of the information provided by the central bank, i.e., announcements cause deterioration of expectations in times of instability, and reduce inflation expectations when inflation is controlled. The results also support the idea that the credibility of inflation targeting plays a key role in determining inflation expectations. Practical implications – This paper suggests a new approach on studies about central bank communication. The focus here is not on the effect of the announcements in terms of future monetary policy, but on the perception of the central bank in terms of inflation. This central bank’s perception reflects the optimistic or pessimistic view about the economic outlook and risk of inflation and this perception is considered by experts of financial markets. Originality/value – For Brazil, there are no studies about the influence of communication through the minutes of the Brazilian Monetary Policy Committee meetings on inflation expectations. The authors develop an indicator in order to measure central bank’s perception of inflation based on the minutes of COPOM meetings.

Download Full-text

Central Bank Announcements and Inflation Expectations

Crafting Consensus ◽

10.1093/oso/9780190499488.003.0005 ◽

2020 ◽

pp. 101-120

Author(s):

Nicole Baerg

Keyword(s):

Central Bank ◽

Treatment Effect ◽

Average Treatment Effect ◽

Inflation Expectations ◽

Medium Term ◽

Precise Information ◽

Central Bank Communication ◽

Inflation Forecasts ◽

One Year ◽

Demographic Features

Chapter 5 tests the main mechanism that central bank communication changes households’ inflation expectations. The chapter reports evidence from a survey experiment conducted on a sample of German households. It shows that households that receive more precise central bank information react more to central bank news than those who receive more vague information. Estimating the average treatment effect across the two experimental groups, the result is that more precise information attenuates both short-term (one-year-ahead) and medium-term (five-years-ahead) inflation forecasts but not longer-term expectations (ten years ahead). Other findings are that while younger people, women, and those less educated and financially literate have higher prior inflation expectations than their older, male, and financially literate counterparts, the evidence suggests that information rather than socioeconomic or demographic features matters most of all.

Download Full-text

Effects of transparency, monetary policy signalling and clarity of central bank communication on disagreement about inflation expectations

Applied Economics ◽

10.1080/00036846.2015.1083091 ◽

2015 ◽

Vol 48 (7) ◽

pp. 590-607 ◽

Cited By ~ 17

Author(s):

G. C. Montes ◽

L. V. Oliveira ◽

A. Curi ◽

R. T. F. Nicolay

Keyword(s):

Monetary Policy ◽

Central Bank ◽

Inflation Expectations ◽

Central Bank Communication

Download Full-text

Sentimental Outlook for the Monetary Policies of South African Reserve Bank

International Journal of Finance & Banking Studies (2147-4486) ◽

10.20525/ijfbs.v10i3.1298 ◽

2021 ◽

Vol 10 (3) ◽

pp. 37-56

Author(s):

Arnold Segawa

Keyword(s):

Central Bank ◽

South African ◽

Inflation Targeting ◽

Causal Effect ◽

Effective Communication ◽

Inflation Expectations ◽

Systematic Analysis ◽

Central Bank Communication ◽

Inflation Expectation ◽

Reserve Bank

The South African Reserve Bank (SARB) migrated to inflation targeting in 2000 and has since embarked on a trajectory of transparency. This has taken the shape of releasing Monetary Policy Committee (MPC) statements other forms of communication. This paper examines SARB’s MPC statements’ tone and sentiment between 2000 and 2021 using the Besigye-Segawa’s TextBlob polarity and subjectivity calculator which measures central bank communication tone and sentiment using the Loughran-McDonald dictionary’s word classification to gauge polarity and subjectivity. The study goes on to explore causality of SARB’s MPC statements’ tone and sentiment on inflation expectation results from the Bureau of Economic (BER) results survey. The systematic analysis shows a causality of SARB’s MPC statements’ tone and sentiment on succeeding BER’s inflation expectations results therein justifying the need for effective communication as SARB’s MPC communications’ polarity and subjectivity ultimately have a causal effect on inflation expectations. therein justifying the need for effective communication. As central bank tone and sentiment studies are only emerging in many emerging and frontier markets, this study lays a foundation for future exploration of effects of central bank communication on the expectations channel.

Download Full-text