Inflation Targeting and Communication: It Pays off to Read Inflation Reports (original) (raw)

Clarity of Central Bank Communication About Inflation

2012

Abstract: This paper examines whether the clarity of central bank communication about inflation has changed with the economic environment. We use readability statistics and content analysis to study the clarity of communication on the inflation outlook by seven central banks between 1997 and 2010. Overall, we find no strong indications that central banks were less clear in explaining their policies when faced with higher uncertainty or a less favorable inflation outlook.

What drives clarity of central bank communication about inflation?

ABSTRACT This paper examines whether the clarity of central bank communication about inflation varies with the economic environment. Using readability statistics and content analysis, we study the clarity of communication on the inflation outlook by seven central banks across three continents during the recent decade. We uncover significant and persistent differences in clarity over time and across countries.

Central bank transparency: cross-country comprehension (example of inflation reports)

Business Ethics and Leadership, 2017

Implementation of inflation targeting strategy by central bank is connected with public announcement of inflation targets and central bank's obligation to achieve these goals. The main element of the central bank's communication policy in terms of implementing the inflation targeting strategy is the inflation report. The study offers three methods of assessing the quality of inflation reports: 1) expert method (an evaluation of the inflation reports produced by 15 inflation-targeting central banks considering the following criteria: how convincing the report is judged to be, how users trust the central bank, how decisions on monetary policy are fully argued; how complete the report is and the overall assessment of the report); 2) readability test (Flash index calculation, "target audience" definition); 3) content analysis of inflation reports (by using ABBYY FineReader 9.0, ATLAS.ti 7, QDA Miner Lite software). We find that variables that characterize the quality of the inflation report are closely negatively related to the degree of change in the market participants expectations of interest rate. Statistical relationship between the quality of inflation reports and predictability of monetary policy was proved by using STATISTICA 10 package.

Inflation targeting : a framework for communication’, The B.E

2009

More than a monetary policy strategy, we interpret inflation targeting as a framework for communication. We model monetary policy as an informa-tion game between the Bank and private agents. Our analysis shows how the provision of an explicit numerical inflation objective overcomes poten-tial information imperfections by providing a focal point for agents who form expectations. Furthermore, the combination of the target and the tolerance bands around it communicated, provide a very clear framework with which to evaluate monetary policy outcomes. A successful Central Bank then builds up credibility and a credible Central Bank is in a better position to be successful in subsequent periods. We show how (and when) inflation targeting exploits this self-reinforcing loop to help the Central Bank endure large and long-lasting shocks. Last, we show that a trade-off emerges when choosing the band-width: too narrow bands provide a focal point but reduce the likelihood of inflation being ‘succ...

Central bank communication and monetary policy: A survey of theory and evidence

2008

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. model could be closed by appending a central bank reaction function (e.g., a "Taylor rule"):

Central Bank Communication and Policy Interest Rate

International Journal of Financial Research, 2020

Central bank communications play an important role in the monetary policy. In the inflation-targeting frameworks, central bank communications might guide public to shape inflation expectations and then determine actual inflation rates through which the policy interest rates policy would manage them. This paper studied the impact and central bank monetary policy communications on the policy interest rate. Unlike other studies, this paper uses two stages. First, we estimate the impact of central bank communication on the inflation expectation gap. Second, we use the estimated value of inflation expectation gap to predict the policy interest rate. The study found evidence that economic agents analyse the Governor Board of Central Bank of Indonesia meeting decisions every month to shape their inflation expectation. Therefore, the difference between inflation expectation and actual inflation tends to narrow. The inflation expectation gap affects the policy interest rates in Indonesia. In...

Truthfulness of Central Bank Announcements

To evaluate the impact of central bank transparency, previous literature has assumed that the policymaker commits to truthful communication. However, by manipulating in ‡ation expectations economic volatility might be reduced. This paper analyses the truthfulness with which a central bank communicates in ‡ation targets or forecasts. It shows that, for a standard model, there is no rational expectations equilibrium with in ‡ation announcements when the policymaker has incentives to misrepresent private information. This problem is solved by announcing late in the period, when in ‡ation expectations are already formed but there is not yet information about future shocks. In this case, there are no incentives to mislead the public and in ‡ation announcements are still informative about the central bank's intentions for future periods. Therefore, an equilibrium does exist and truth-telling is optimal for the central bank and welfare-improving for society. Based on the implications of the model, empirical data is examined and no evidence is found against the truthfulness of annual in ‡ation targets.