Multi-Dimensional Uncertainty And Central Bank Communication: What Do Central Bankers Talk About And Why?

48 Pages Posted: 16 Dec 2022

Date Written: December 2, 2022

Abstract

When communicating with the public about the state of the economy, central bankers not only need to decide the messages they want to convey, but also how much to focus on various relevant economic variables. I consider a policymaker whose objective is to minimise the mean-squared error of private sector forecasts, and ask how they can achieve this when facing multidimensional uncertainty. By quantifying central bank focus on and uncertainty around various macroeconomic variables, I show that published minutes of the Federal Reserve’s Open Market Committee follow the co-movement patterns predicted by optimal behaviour in the model, while speeches made by committee members do not. I then show, with an event study approach, that speeches have a greater pass-through to media than the minutes. This suggests that focus is sub-optimal where it has the greatest impact.

Keywords: central bank communication, natural language processing, uncertainty, expectations

JEL Classification: E58, D82, C55

Suggested Citation

Ashwin, Julian, Multi-Dimensional Uncertainty And Central Bank Communication: What Do Central Bankers Talk About And Why? (December 2, 2022). Available at SSRN: https://ssrn.com/abstract=4291983 or http://dx.doi.org/10.2139/ssrn.4291983

Julian Ashwin (Contact Author)

Maastricht University ( email )

P.O. Box 616
Maastricht, Limburg 6200MD
Netherlands

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