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Communicating Inflation Uncertainty and Household Expectations Metropolitan Areas

Author

Listed:
  • Olena Kostyshyna
  • Luba Petersen

Abstract

This paper examines the value of direct communication to households about inflation and the uncertainty around inflation statistics. All types of information about inflation are effective at immediately managing inflation expectations, with information about outlooks being more effective and more relevant than that about recent inflation and Bank targets. We observe no downside to communicating about inflation with uncertainty on two measures: the level of expected inflation and uncertainty about it. On a third measure—probabilistic inflation expectations—we observe positive effects: they become more centered around the communicated ranges. However, communication with uncertainty weakens the link between expected inflation and spending plans, a key channel in the transmission of monetary policy. Communicating precise inflation outlooks can lengthen the effects of these communications on households.

Suggested Citation

  • Olena Kostyshyna & Luba Petersen, 2023. "Communicating Inflation Uncertainty and Household Expectations Metropolitan Areas," Staff Working Papers 23-63, Bank of Canada.
    • Handle: RePEc:bca:bocawp:23-63
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    More about this item

    Keywords

    Central Bank Research; Credibility; Inflation and prices; Inflation targets; Monetary policy and uncertainty; Monetary policy communications;
    All these keywords.

    JEL classification:

    • C93 - Mathematical and Quantitative Methods - - Design of Experiments - - - Field Experiments
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E59 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Other
    • E7 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics

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