Central Bank Communication and Information Acquisition
Paper Session
Saturday, Jan. 4, 2025 8:00 AM - 10:00 AM (PST)
- Chair: Yuriy Gorodnichenko, University of California-Berkeley and NBER
Getting through: Communicating Complex Information
Abstract
Policymakers communicate complex messages to multiple audiences; we investigate how complexity impacts messages `getting through' effectively. We distinguish `semantic' complexity - the focus of existing empirical studies - from `conceptual' complexity, which better reflects information-processing costs identified by theory. We conduct an information-provision experiment using central bank communications; conceptual complexity - captured by a novel measure we construct - matters more for getting through, even for economics-trained individuals. Yet, recent Bank of England efforts to simplify language reduced traditional semantic measures, but conceptual complexity has actually increased. Our findings can direct efforts for effective policy communication design.Central Bank Communication and Media Coverage
Abstract
We use large language models to analyse the consistency between the Federal Reserve’s communication about FOMC decisions and media coverage. We analyse around 41,00 articles from eight major news outlets, covering 224 FOMC announcements over the period 1994-2023. We find that communication about the monetary policy stance – whether hawkish, dovish or neutral – is generally correctly portrayed by the media, although with notable differences across time, communication tools, and tenure of Fed chairs. We obtain three main results. First, the communication pass-through deteriorated when interest rates reached the ZLB post-GFC but has recovered since then. Second, press conferences have become particularly influential in guiding media coverage but convey at times a different sentiment than FOMC statements, underscoring the challenges posed with this high-stake communication tool. Third, the communication pass-through deteriorates at the beginning of a new Fed chair’s tenure but improves over time. Our analysis can guide central banks to tailor communication and maximize its reach and effectiveness.Diverse Policy Committees Can Reach Underrepresented Groups
Abstract
Increasing the diversity of policy committees has taken center stage worldwide, but whether and why diverse committees are more effective is still unclear. In a randomized control trial that varies the salience of female and minority representation on the Federal Reserve’s monetary policy committee, the FOMC, we test whether diversity affects how Fed information influences consumers’ subjective beliefs. Women and Black respondents form unemployment expectations more in line with FOMC forecasts and trust the Fed more after this intervention. Women are also more likely to acquire Fed-related information when associated with a female official. White men, who are overrepresented on the FOMC, do not react negatively. Heterogeneous taste for diversity can explain these patterns better than homophily. Our results suggest more diverse policy committees are better able to reach underrepresented groups without inducing negative reactions by others, thereby enhancing the effectiveness of policy communication and public trust in the institution.Discussant(s)
Carola Binder
,
University of Texas-Austin
Klodiana Istrefi
,
Bank of France
Laura Gati
,
European Central Bank
Paolo Pesenti
,
Federal Reserve Bank of New York
JEL Classifications
- E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit
- D8 - Information, Knowledge, and Uncertainty