Central bank communication and monetary policy
A survey of theory and evidence
By Alan S. Blinder, Michael Ehrmann, Marcel Fratzscher,
Jakob De Haan and David-Jan Jansen
https://www.ecb.europa.eu/pub/pdf/scpwps/ecbwp898.pdf?380fa5b27a75abbce110013251f9afaf
Central bank communication -> create news and reduce noise
The four extreme cases when central bank communication matters: nonstationarity , the learning, non-rational expectation and asymmetric information between the public and the central bank
The three channels: direct effect of the overnight rate on the aggregate demand, direct effect on the expected future short rates, the direct effect of the short term changes in short rates on the expectations of the entire sequence of the future short rates
There are limits to how much the information could be digested efficiently
The honest central bank talk is almost certain to coordinate beliefs in the right direction
What to communicate: objectives and strategy, policy decisions, the economic outlook, the path of future policy rates
The confirmation recommends that correspondence can be a vital and capable part of the national bank's toolbox since it can move money related markets, to improve the consistency of fiscal strategy choices, and conceivably to accomplish national banks' macroeconomic targets. In any case, the substantial variety in correspondence procedures crosswise over national banks proposes that an agreement has yet to develop on what constitutes an ideal correspondence methodology.
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