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War of the Words: How Elites' Communication Changes the Economy

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  • Baerg, Nicole Rae

Abstract

How does variation in the clarity of elites’ communication change the economy? Previous re- search shows that elites’ communication changes the economy, but not all messages are crafted equally. Models of strategic communication suggests that clearer and precise information can improve the economy more than ambiguous messages. In order to test this claim, I develop a new dataset of political elites’ inflation statements and measure each statements’ information precision. I then test whether or not economic performance depends on how precisely political elites communicate. I find evidence that an increase in information precision, through its attenuating effects on inflation expectations, lowers inflation. Furthermore, I find that this is true when examining a number of developing countries over a relatively volatile time period.

Suggested Citation

  • Baerg, Nicole Rae, 2014. "War of the Words: How Elites' Communication Changes the Economy," MPRA Paper 59823, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:59823
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    File URL: https://mpra.ub.uni-muenchen.de/59823/1/MPRA_paper_59822.pdf
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    References listed on IDEAS

    as
    1. Alan S. Blinder & Michael Ehrmann & Marcel Fratzscher & Jakob De Haan & David-Jan Jansen, 2008. "Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence," Journal of Economic Literature, American Economic Association, vol. 46(4), pages 910-945, December.
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    3. repec:pri:cepsud:161blinder is not listed on IDEAS
    4. Bailey, Andrew & Schonhardt-Bailey, Cheryl, 2008. "Does Deliberation Matter in FOMC Monetary Policymaking? The Volcker Revolution of 1979," Political Analysis, Cambridge University Press, vol. 16(4), pages 404-427.
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    7. Rosa, Carlo & Verga, Giovanni, 2007. "On the consistency and effectiveness of central bank communication: Evidence from the ECB," European Journal of Political Economy, Elsevier, vol. 23(1), pages 146-175, March.
    8. Laver, Michael & Benoit, Kenneth & Garry, John, 2003. "Extracting Policy Positions from Political Texts Using Words as Data," American Political Science Review, Cambridge University Press, vol. 97(2), pages 311-331, May.
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    Cited by:

    1. Greene, Zac & Ceron, Andrea & Schumacher, Gijs & Fazekas, Zoltan, 2016. "The Nuts and Bolts of Automated Text Analysis. Comparing Different Document Pre-Processing Techniques in Four Countries," OSF Preprints ghxj8, Center for Open Science.

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    More about this item

    Keywords

    central bank communication; clarity; inflation; inflation expectations;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • 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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