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The Central Bank Crystal Ball: Temporal information in monetary policy communication

Author

Listed:
  • McMahon, Michael
  • Byrne, David
  • Goodhead, Robert
  • Parle, Conor

Abstract

Effective central bank communication provides information that the public wants but does not have. Using a new textual methodology to quantify the temporal information in central bank communication, we argue that central bank assessments of the (latent) state of the economy can be the source of the public's information deficit, rather than superior information necessarily. The implication of this is that communication of a single, fixed, reaction function, even if desirable, is likely impossible even if preferences remain fixed over time. Communication of how the central bank is assessing the economy should be emphasised in addition to any forward guidance.

Suggested Citation

  • McMahon, Michael & Byrne, David & Goodhead, Robert & Parle, Conor, 2023. "The Central Bank Crystal Ball: Temporal information in monetary policy communication," CEPR Discussion Papers 17930, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:17930
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    Cited by:

    1. Maximilian Ahrens & Deniz Erdemlioglu & Michael McMahon & Christopher J. Neely & Xiye Yang, 2023. "Mind Your Language: Market Responses to Central Bank Speeches," Working Papers 2023-013, Federal Reserve Bank of St. Louis, revised 21 Feb 2024.
    2. Linas Jurkšas & Rokas Kaminskas, 2023. "ECB monetary policy communication: does it move euro area yields?," Bank of Lithuania Discussion Paper Series 29, Bank of Lithuania.

    More about this item

    Keywords

    Communication;

    JEL classification:

    • 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
    • C55 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Large Data Sets: Modeling and Analysis

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