Seeing and hearing is believing: The role of audiovisual communication in shaping inflation expectations

This paper presents novel causal evidence on the effect of different communication channels employed by central banks on people’s expectations about future inflation. In a pre-registered randomized survey experiment among a representative household sample, we examine adjustment of inflation expectations when confronted with a press conference statement by the president of the European Central Bank (ECB) articulating the bank’s commitment to its 2% inflation target. We show that the medium of communication matters, holding the content of the message constant: Relative to a text transcript, audiovisual mediums strengthen updating toward the inflation target, with dynamic mediums (audio and video) being more effective than static mediums (photo). In a Bayesian updating framework, we find that audiovisual communication increases the signal gain as compared to textual communication, i.e., respondents put more weight on the information they receive. We also show that economically less-informed households (those consuming less economic news) are more responsive in updating to audiovisual mediums. Overall, our results suggest that central bank messages aimed directly at the public can help to anchor inflation expectations.