Does clarity of central bank communication affect credibility? Evidences considering governor-specific effects

Central banks have made great efforts to increase transparency and accountability to the public. Since then, studies seek empirical evidences about the effects of monetary policy communication over agent’s expectations. The recent literature on central bank communication draws attention to the importance of clarity of central bank communication. However, researches on this theme are still scarce, and there are few empirical studies with conclusive findings. Our study seeks empirical evidences on the relation between clarity of central bank communication and credibility of monetary policy. Estimates through different methods aim to identify whether clarity of central bank communication improves credibility. The study is the first to provide empirical evidence that a clearer communication can improve credibility. We also consider the differences between the two governors who ruled the Central Bank of Brazil in the period under analysis. The results indicate that a clear communication can improve credibility, but it depends on the commitment of the central banker with the goal of inflation control. Furthermore, estimates based on quantile regression indicate that the benefit brought by the clarity to the credibility depends on the commitment of the monetary authority with the goal guiding inflation expectations.