Effective Policy Communication: Targets versus Instruments

43 Pages Posted: 19 Oct 2020

See all articles by Francesco D'Acunto

Francesco D'Acunto

Georgetown University

Daniel Hoang

University of Hohenheim

Maritta Paloviita

Bank of Finland - Research

Michael Weber

University of Chicago - Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 2 versions of this paper

Date Written: October 15, 2020


Communication targeting households and firms has become a stand-alone policy tool of many central banks. But which forms of communication, if any, can reach ordinary people and manage their economic expectations effectively? In a large-scale randomized control trial, we show that communication manages expectations when it focuses on policy targets and objectives rather than on the instruments designed to reach such objectives. It is especially the least sophisticated demographic groups, which central banks typically struggle to reach, who react more to target-based communication. When exposed to target-based communication, these groups are also more likely to believe that policies will benefit households and the economy. Target-based communication enhances policy effectiveness and contributes to strengthen the public’s trust in central banks, which is crucial to guarantee the credibility of their policies.

Keywords: Behavioral Macroeconomics, Heterogeneous Beliefs, Limited Cognition, Expectations Formation, Household Finance

JEL Classification: D12, D84, D91, E21, E31, E32, E52, E65

Suggested Citation

D'Acunto, Francesco and Hoang, Daniel and Paloviita, Maritta and Weber, Michael, Effective Policy Communication: Targets versus Instruments (October 15, 2020). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2020-148, Available at SSRN: https://ssrn.com/abstract=3712658 or http://dx.doi.org/10.2139/ssrn.3712658

Francesco D'Acunto

Georgetown University ( email )

Washington, DC 20057
United States

Daniel Hoang

University of Hohenheim

Fruwirthstr. 49
Stuttgart, 70599

Maritta Paloviita

Bank of Finland - Research ( email )

P.O. Box 160
FIN-00101 Helsinki
+358 9 1831 (Phone)
+358 9 1832560 (Fax)

Michael Weber (Contact Author)

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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