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Can central bank communication effectively guide the monetary policy expectation of the public?

Author

Listed:
  • Liu, Jianguo
  • Liu, Liya
  • Min, Min
  • Tan, Shuying
  • Zhao, Fanqing

Abstract

Central bank communication helps to optimize monetary policy. Therefore, it is essential to study whether central bank communication can effectively guide expectations via various communication methods. We study central bank communication in China using the events collected from its official websites and social media, and we divide them into formal and informal communications. We use the high-frequency quotation data of treasury bonds to identify monetary policy surprise caused by communication, which is measured by the target and path surprise. Then, we evaluate the forward-looking and backward-looking effectiveness of central bank communications. We show that central bank communications can help guide public expectations, but different topics and different forms of communication have heterogeneous effects. Forward guidance carries both potential benefits and drawbacks. It is worth noting that China's current central bank communications may have certain potential to be improved.

Suggested Citation

  • Liu, Jianguo & Liu, Liya & Min, Min & Tan, Shuying & Zhao, Fanqing, 2022. "Can central bank communication effectively guide the monetary policy expectation of the public?," China Economic Review, Elsevier, vol. 75(C).
    • Handle: RePEc:eee:chieco:v:75:y:2022:i:c:s1043951x22000918
    DOI: 10.1016/j.chieco.2022.101833
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    More about this item

    Keywords

    Effectiveness of expectation management; Central bank communication; Monetary policy surprise; Target surprise; Path surprise;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E50 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - General
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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