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What Drives Clarity of Central Bank Communication About Inflation?
Abstract
This paper examines whether the clarity of central bank communication about inflation varies with the economic environment. Using readability statistics and content analysis, we study the clarity of communication on the inflation outlook by seven central banks across three continents during the recent decade. We uncover significant and persistent differences in clarity over time and across countries. However, identifying determinants of clarity that are robustly relevant across our sample of central banks proves elusive. Overall, our findings suggest that a single model for clarity of central bank communication is not appropriate. Rather, when studying clarity of communication, country-specific and institution-specific factors are highly relevant. © 2012 Springer Science+Business Media New York (outside the USA).
... 9 This study relies on the readability index proposed by Jansen (2011aJansen ( , 2011b. Bulíř et al. (2013) further examine central bank clarity of inflation reports the Czech National Bank, the European Central Bank, the Bank of England, and Sveriges Riksbank. Relying on the Flesch-Kincaid grade level as a measure of textual clarity (Kincaid et al., 1975), they were able to quantify the inflation reports' readability. ...
... This indeed brings attention to SARB's communication framework and whether this was a deliberate effort to ease readability in a bid to aid comprehension post 2015. However, this raises the question of whether the SARB's easing of its MPC statements' readability has yielded more clarity as qualified by Bulíř et al. (2013). ...
... As illustrated in Figures 1 and 2, the computations exhibits more sharp movements in both the Flesch Reading Ease Score Computation and the Flesch-Kincaid grade level index in the wake of the 2008 financial crisis. Bulíř et al. (2013) determined that central banks sought to reassure the public during the global financial crisis and this is evidently reaffirmed in SARB's MPC communications. As illustrated in Figure 1, the in 2009, Flesch-Kincaid Grade Level drops from 13 to just over 10 as the Flesch Reading Ease Score rises from 40 to 53 (see Figure 2). ...
In 2000, South Africa's central bank, the South African Reserve Bank (SARB), adopted flexible inflation targeting as a monetary regime, and in doing so, set its inflation target at 3-6% for the headline consumer price index (Coco & Viegi, 2020). Essential to achieving this inflation target is not only clear communication of ex-post policy actions, but a clear dissemination of the SARB's future actions. This paper examines how the SARB has been communicating, with particular emphasis on their Monetary Policy Committee (MPC) press statements between January 2000 and January 2021. The breadth of the sample space is informed by a necessity to explore changes in the SARB's communication strategies. In particular, this study considers the role of the SARB's MPC press releases, and given the wide span of the sample, it offers an inquiry into what has changed over the 21-year period, hence considering whether there has been more clarity in the SARB's communication over that time. This question is answered using the Flesch and Flesch-Kincaid methods, which are widely accepted in central bank communication literature. The two methods gauge how difficult a passage in English is to understand, and are thus used to assess readability hence clarity. In evaluating central bank communications and upon surveying the data, the paper offers empirical evidence about the clarity of the SARB's MPC meeting statements spanning over two decades, and clearly exhibiting its evolution. This study finds that SARB communications' Flesch Reading Ease Score Computation is way above and fluctuates more than the Flesch-Kincaid Grade Level Computation, exhibiting a random fluctuation between 2000 and 2015. Therefore, despite SARB's MPC statements exhibiting more readability, their reliance on academic words has made them more complex and difficult to understand.
... Since then, central bank communication represents an important tool to monetary policy effectiveness (Blinder et al. 2001(Blinder et al. , 2008. The literature on central bank communication continues to evolve and researches have been drawing attention to the importance of clarity of central bank communication (Jansen 2011a(Jansen , 2011bBulíř, Čihák, and Jansen 2013a;Bulíř, Čihák, and Šmídková 2013b;Montes et al. 2016). This emerging literature stresses that the clarity of central bank communication is important to reduce uncertainties, and thus it may represent a key aspect for central banks to achieve their goals. ...
... Jansen (2011a) presents the rationale for the link between transparency and clarity arguing that 'readability is a fundamental precondition for transparency' (496). Thus, claritymeasured through the readability index proposed in Jansen (2011aJansen ( , 2011b, Bulíř, Čihák, and Jansen (2013a) and Montes et al. (2016) can be considered as an important tool to build credibility. ...
... Agénor and Taylor 1992;Svensson 2000;Cecchetti and Krause 2002;de Mendonça 2007;de Mendonça and de Guimarães E Souza 2009;Nahon and Meurer 2009;Montes and Bastos 2014), credibility is higher when inflation expectations are close to the target, which means agents believe central bank can achieve its goal. Besides, we make use of two clarity indexes presented in Jansen (2011aJansen ( , 2011b and also utilized by Bulíř, Čihák, and Jansen (2013a) and Montes et al. (2016). The indexes are the Flesh ease score (Flesch 1948) and the Flesh-Kincaid grade level (Kincaid et al. 1975). ...
Central banks have made great efforts to increase transparency and accountability to the public. Since then, studies seek empirical evidences about the effects of monetary policy communication over agent’s expectations. The recent literature on central bank communication draws attention to the importance of clarity of central bank communication. However, researches on this theme are still scarce, and there are few empirical studies with conclusive findings. Our study seeks empirical evidences on the relation between clarity of central bank communication and credibility of monetary policy. Estimates through different methods aim to identify whether clarity of central bank communication improves credibility. The study is the first to provide empirical evidence that a clearer communication can improve credibility. We also consider the differences between the two governors who ruled the Central Bank of Brazil in the period under analysis. The results indicate that a clear communication can improve credibility, but it depends on the commitment of the central banker with the goal of inflation control. Furthermore, estimates based on quantile regression indicate that the benefit brought by the clarity to the credibility depends on the commitment of the monetary authority with the goal guiding inflation expectations.
... Another possibility is to look at the formal quality thereof. Some banks write better than others (Fracasso et al. 2003) and well-written texts have a better chance of being understood as intended (Jansen 2011;Bulíř et al. 2013). Bulíř et al. (2012) looked at consistency among various communication tools, such as monetary policy reports and press releases, finding that banks with well-developed policy analysis systems write more clearly. ...
... Ehrmann and Fratzscher (2007) and Bulíř et al. (2012) argued that central banks possess knowledge about the overall balance of inflation risks rather than about the detailed factors. Institutions facing financial crises have technical difficulty disentangling the various factors and political difficulty to communicate their findings (Bulíř et al. 2013). ...
... We quantify the reported factors using content analysis (Guthrie and Wright 2000;Bulíř et al. 2013) employing a unique new database based on monetary policy reports. Each FL factor is catalogued into a supply, demand, or foreign exchange factor and classified as pushing the future rate of inflation either higher (+1), lower (−1), or neither (0). ...
We offer a novel methodology for assessing the quality of central bank monetary policy reports. We evaluate their economic content by comparing verbally reported inflation factors with factors identified from a simple new Keynesian model. Positive correlations indicate that the reported inflation factors were similar to the model-identified ones, marking high-quality inflation reports. Although sample bank reports on average identified inflation factors correctly, the degree of forward-looking reporting varied.
... (2) We analyse the influence of clarity of central bank communication on disagreement about inflation expectations. Thus, following the still incipient literature on the clarity of central bank communication (Jansen 2011a(Jansen , 2011bBulíř, Čihák, and Jansen 2013), we use a well-established statistic from the literature on readability, the Flesch (1948) statistic (or the Flesch reading ease score). (3) We investigate whether greater transparency coincides with lower levels of disagreement in inflation expectations. ...
... The increase in monetary policy communication in the past decades has been justified by benefits of policy transparency (Čihák 2007;Geraats 2002). Most of the empirical literature on central bank communication has focused either on quantitative measures of monetary policy transparency or short-term effects of central bank announcements, with much less attention paid to the overall clarity of the communication (Bulíř, Čihák, and Jansen 2013). However, an important question arose: does clarity of central bank communication matter? ...
... The results indicate that there is no significant difference between the clarity of the two Federal Reserve chairmen. Bulíř, Čihák, and Jansen (2013) also measured the clarity with Flesch (1948) and Kincaid et al. (1975). They examined whether the clarity of central bank communication about inflation varies with the economic environment in six countries (Chile, Czech Republic, Poland, Sweden, Thailand and the UK) and the euro area. ...
The literature on transparency and central bank communication and the literature on disagreement
about expectations are evolving; however, both have been evolving separately. Despite the
advances in the literature, several key issues remain open and there are gaps to be filled.
Therefore, this study analyses the effects of monetary policy signalling and clarity of central
bank communication on disagreement about inflation expectations. It also investigates whether
greater transparency coincides with lower levels of disagreement in inflation expectations in
Brazil. The findings suggest that transparency is important to reduce disagreement about inflation
expectations. Moreover, our estimates indicate that central bank communication and clarity
affect disagreement about inflation expectations in Brazil.
... Since economic agents use all available information in order to form their expectations, transparency and, therefore, central bank communication play a key role in the expectations formation process (Blinder et al., 2008). Although many advances have already been made, the literature on central bank communication continues to evolve (Rosa and Verga, 2007;Fratzscher, 2007a and2007b;Ullrich, 2008;Montes and Scarpari, 2015) and studies have been drawing attention to the importance of clarity of central bank communication (Jansen, 2011;Bulíř et al. 2013a;Bulíř et al., 2013b). In this sense, how beneficial are transparency, monetary policy signaling and the clarity of central bank communication for the expectations formation process? ...
... The results indicate there is no significant difference between the clarity of the two Federal Reserve chairmen. Bulíř et al. (2013a) also measures clarity with Flesh (1948) and Kincaid et al. (1975). They study the determinants of central bank communication about inflation and analyze six countries (Chile, Czech Republic, Poland, Sweden, Thailand and United Kingdom) and the Euro Area. ...
The literature on transparency and central bank communication and the literature on
disagreement about expectations are evolving; however, both have been evolving separately.
Despite the advances in the literature, several key issues remain open and there are gaps to be
filled. Therefore, this study analyses the effects of monetary policy signaling and clarity of
central bank communication on disagreement about inflation expectations and, it investigates
whether greater transparency coincides with lower levels of disagreement in inflation
expectations in Brazil. The findings suggest transparency is important to reduce the
disagreement about inflation expectations. Moreover, the estimates indicate central bank
communication and clarity of central bank communication affect the disagreement about
inflation expectations in Brazil.
... In particular they established a career effect between new and existing members of the committee in terms of discipline and conformity effect. Bulíř,Čihák, and Jansen (2013) performed human coding on text fragments containing central-bank assessments of IT matters, and they evaluated the clarity of those texts through the Flesch-Kincaid Grade Level. The authors found enhanced communications readability in Chile, lesser readability in Thailand, and an even level in the Czech Republic, Poland, Sweden, and the European central banks. ...
... Although the release of minutes is generally regarded as a step toward procedural transparency, and therefore, toward IT success, this study examined the contents and clarity of these documents as crucial transparency elements in the Latin American context, in a way that had not been done thus far. Bulíř et al. (2013) carried out a related analysis of the clarity of the communication tools of central banks. Their study focused on inflation reports, monetary policy reports, and press releases in seven countries implementing IT. ...
The disclosure of the minutes of the Boards of Directors of central banks (procedural transparency within the inflation targeting (IT) literature) implies the challenge of sending a clear message. Regardless of whether the document released is a brief, moderate, or highly detailed (verbatim) account of a Board's discussion, its contents often align expectations and define an effective monetary policy to curb inflation. This paper provides a quantitative perspective of procedural transparency by performing a text analysis of the minutes of Board meetings in the central banks of Brazil, Chile, Colombia, Mexico, and Peru. The study examined the lengths of the minutes, their frequent vocabulary (including its association with a predefined central-bank terminology), and their readability (through a reading ease index).
... 8 In evaluating the effects of central banks' policies on inflation expectations, the literature has largely focused on whether inflation targeting makes inflation expectations of financial markets and professional forecasts less sensitive to macroeconomic news shocks (e.g., Beechey et al., 2011, Gürkaynak et al. 2010). More recent studies examine how forward guidance changed expectations of these agents (e.g., Campbell et al. 2012, Bulir et al., 2012, Andrade et al. 2015, Wong, 2015. Other work has sought to establish whether inflation targeting regimes have more anchored expectations of professional forecasters (Pierdzioch and Rülke, 2013;Dovern et al., 2012). ...
... Source: Coibion et al. (2018d). 20 Bulir, Jansen, and Cihak Bulir et al. (2012) of communications: "Explaining our analysis at some length is a richer source of information for markets than code words or statements about the future path of interest rates. Less weight should be placed on the short statements that are published with the announcements of our decisions because such statements, as we have seen elsewhere, run the risk of becoming monetary policy by code word. ...
We assess the prospects for central banks using inflation expectations as a policy tool for stabilization purposes. We review recent work on how expectations of agents are formed and how they affect their economic decisions. Empirical evidence suggests that inflation expectations of households and firms affect their actions but the underlying mechanisms remain unclear, especially for firms. Two additional limitations prevent policy-makers from being able to actively manage inflation expectations. First, available surveys of firms' expectations are systematically deficient, which can only be addressed through the creation of large, nationally representative surveys of firms. Second, neither households' nor firms' expectations respond much to monetary policy announcements in low-inflation environments. We provide suggestions for how monetary policy-makers could pierce this veil of inattention through new communication strategies as well as the potential pitfalls to trying to do so.
... First of all, the contents of communication must be distinguished, which can be either a quantitative (Hayo and Neuenkirch, 2010) or a qualitative announcement; further the issues -macroeconomic performances, including inflation (Cihak et al., 2012) and fiscal policies (Allard et al., 2012) -or financial stability (Born et al., 2010 and) -can be relevant. ...
... The four lines denote the average yearly values of the clarity of the reports. In line with Bulíř et al. (2013), there is evidence of a decrease in clarity around the start of the global financial crisis in 2008. However, except for the UK, the decrease in clarity of reports seems temporary rather than permanent. ...
We study whether increased clarity of central bank reports on monetary policy can reduce volatility of returns in financial markets. We measure clarity of reports by the Czech National Bank, the European Central Bank, the Bank of England, and Sveriges Riksbank using the Flesch-Kincaid grade level. In contrast to much of the recent literature, we find only limited evidence of a negative relationship between clarity of monetary policy reports and market volatility. We conclude that reducing volatility using clearer reports is not straightforward, especially in times of crisis.
... 1 At this point, we note that our study -as well as the study presented by Mendonça and Nicolay (2017) Hence, readability is a key piece in this framework. Clarity relates to the lucidity and readability of the text (Jansen, 2011a and2011b;Bulíř et al., 2013;Montes et al., 2016;Jansen and Moessner, 2016;de Mendonça and Nicolay, 2017;Montes and Nicolay, 2017). If someone has to process a text with long words or sentences, it will be harder to grasp the message (Jansen, 2011b). ...
This paper analyzes the effects of fiscal communication and clarity of announcements about fiscal policy on public debt uncertainty. Using different econometric techniques (OLS, GMM, ARDL and Quantile Regressions), the results indicate that, in order to reduce uncertainties about the future behavior of public debt, it is not enough to simply increase the volume of communication about fiscal policy. The provision of more information through communication must be accompanied by improvements in the clarity of the announcements released. Thus, our findings reveal that as clarity of fiscal announcements increases, the stronger is the effect of improvements in communication from fiscal authority in reducing public debt uncertainty; and this effect is even stronger when public debt uncertainty is higher.
... Hence, readability is a key piece in this framework. Clarity relates to the lucidity and readability of the text (Bulíř, Čihák, & Jansen, 2013;de Mendonça & Nicolay, 2017;Jansen & Moessner, 2016;Jansen, 2011aJansen, , 2011bMontes & Nicolay, 2017;Montes et al., 2016). If someone has to process a text with long words or sentences, it will be harder to grasp the message (Jansen, 2011b). ...
This paper analyzes the effects of fiscal communication and clarity of announcements about fiscal policy on public debt uncertainty. Using different econometric techniques (OLS, GMM and Quantile Regressions), the results indicate that the provision of more information through communication must be accompanied by improvements in the clarity of the announcements released. Thus, our findings reveal that as clarity of fiscal announcements increases, the stronger is the effect of improvements in communication from fiscal authority in reducing public debt uncertainty; and this effect is even stronger when public debt uncertainty is higher.
... What drives the clarity of central bank communication? Bulíř, Čihák and Jansen (2013) analyze this question considering seven central banks. The main result of this study is that country-specific and institution-specific factors are relevant. ...
Purpose
Studies about the determinants of the clarity of central bank communication are still scarce. To our knowledge, there are no studies regarding emerging economies. The present study contributes to the literature in the following aspects: it analyzes the determinants of the clarity of the central bank communication in an inflation targeting emerging economy; it observes the influence of inflation volatility over the clarity; and it observes the effect of the monetary policy signaling over the clarity.
Design/methodology/approach
The work uses readability indexes to measure the clarity of central bank communication. The empirical analysis uses ordinary least squares and the generalized method of moments with one and two-step estimations.
Findings
The findings suggest the inflation volatility reduces the clarity of central bank communication. Moreover, the monetary policy signaling also affect the clarity, but the effect depends on the direction of the signal.
Practical implications
This paper observes the determinants of the clarity considering an emerging economy environment. The clarity of central bank communications is an important tool to access transparency. Hence, the analysis of what determines the clarity of central bank communication is a debate about the level of transparency accessed by the central bank.
Originality/value
There are no studies about the determinants of the clarity of central bank communication in emerging economies. Moreover, the novelty are the effects of inflation volatility and monetary policy signaling over the clarity.
... By contrast, Wynne (2013) argued that policy statements may unsettle financial markets if they were too difficult to comprehend. Bulíř et al. (2013) highlighted that the clarity of central bank communication varied throughout the business cycle. The lengthier statements that have accompanied policy announcements in the modern era of unconventional monetary policy were more difficult to understand (Hernandez-Murillo and Shell 2014), which led to higher market volatility (Jansen 2011) and made it more difficult for central bankers to gauge the impact of their policy decisions. ...
This paper examines the link between changes in the sentiment tone with respect to the European Central Bank’s (ECB) announcements and stock returns. The analysis constructs a new index that describes the tone of the sentiment derived from these announcements, spanning the period January 2002 to June 2016. The novelty of this work relies on the development of a unique sentiment index associated with the messages conveyed by the ECB’s activities and the effect of this index on both the mean and the volatility of certain major international stock markets. In this context, the sentiment index is present in both the conditional mean and the volatility equations. The findings indicate a significant impact on both the mean and the volatility of returns, whereas the news sentiment/stock returns association increases in strength during the crisis period. The findings survive a robustness check based on the characteristics of the ECB governor’s personality.
... This paper concentrates on the ECB and Federal Reserve during the crisis period of 2007 to 2010, but a more comprehensive listing of central banks, their current status and monetary policy systems can be found, for example, in Mossner at al. (2017).7 The Federal Reserve set its first explicit inflation target in January 2012. ...
Modern central banks increasingly value monetary policy transparency, and attempt to build credibility by communicating their decisions to the public. This paper studies whether the communication of central banks can be used to explain upcoming changes in their most important monetary policy instrument, the short-term refinancing rate, and whether the public can trust central bank communication during times of financial crisis.
This is done by constructing an indicator to measure the predictability of monetary policy by calculating the median of the policy makers’ official comments. The performance of this indicator is studied with ordered probit methods. The results show that predictability was reached relatively well at central bank level during the financial crisis despite the rapid growth of economic uncertainty, and that communication can be a useful tool for central banks during uncertain times.
... There is also growing evidence from the media economics literature about media bias (Gentzkow and Shapiro, 2010) (Mishkin, 2004), clear (Bulíř, et al. (2013a) ;Bulíř, et al. (2013b); Siklos (2003); Winkler (2002)) and predictable (including Ehrmann and Fratzscher (2007); Poole and Rasche (2003)), or evaluating how various measures of inflation expectations move shortly after communication is released (Gürkaynack, et al. (2006);Gürkaynack, et al. (2005)). ...
Inflation is a monetary policy outcome, but in the short to medium term, price and wage decisions are co-determined by the public and private sectors. Many central banks have adopted transparency as a strategic policy approach, whereby communication of monetary policy goals is used as a public anchor. While the central bank’s strategy involves carefully crafted, deliberately simplified messages, most of the public tends to access inflation-related information through the media. In this paper, we examine South African newspaper articles to identify how inflation is presented in the media and the role of the media, through this presentation, in the process of shaping public opinion around inflation expectations. We do this in two ways. First, we examine how inflation is presented in the media and then we identify the various actors presented in the media, their positions on inflation, and how these relate to each other. The systematic analysis of the media’s presentation of inflation allows us to identify some challenges to the central bank’s communication strategy.
... There is also growing evidence from the media economics literature about media bias (Gentzkow and Shapiro, 2010) (Mishkin, 2004), clear (Bulíř, et al. (2013a) ;Bulíř, et al. (2013b); Siklos (2003); Winkler (2002)) and predictable (including Ehrmann and Fratzscher (2007); Poole and Rasche (2003)), or evaluating how various measures of inflation expectations move shortly after communication is released (Gürkaynack, et al. (2006);Gürkaynack, et al. (2005)). ...
Inflation is a monetary policy outcome, but in the short to medium term, price and wage decisions are co-determined by the public and private sectors. Many central banks have adopted transparency as a strategic policy approach, whereby communication of monetary policy goals is used as a public anchor. While the central bank’s strategy involves carefully crafted, deliberately simplified messages, most of the public tends to access inflation-related information through the media. In this paper, we examine South African newspaper articles to identify how inflation is presented in the media and the role of the media, through this presentation, in the process of shaping public opinion around inflation expectations. We do this in two ways. First, we examine how inflation is presented in the media and then we identify the various actors presented in the media, their positions on inflation, and how these relate to each other. The systematic analysis of the media’s presentation of inflation allows us to identify some challenges to the central bank’s communication strategy.
... This paper contributes to the large and growing literature on central bank communications. One strand of the literature looks at central bank communications on their own terms, describing their style, sentiment and subject matter across time and across jurisdictions ( Bulíř et al., 2011;Allard et al., 2013;Schonhardt-Bailey 2013;Siklos 2013;Hansen et al., 2014 ). While most of these studies have, by necessity, analysed central bank communications in the public domain, a few recent contributions have examined private correspondences ( Goldsmith-Pinkham et al., 2016;Bholat et al., 2017 ). ...
Central bankers and the central banking literature are increasingly attuned to the importance of communications as a policy tool. However, less is known about how central bank communications should be drafted for maximal impact. Our paper contributes new insights in this regard. Using a large-scale online experiment with a sample representative of the UK population, the paper documents the communicative techniques that increase public comprehension and trust in monetary and macroeconomic policy messages. Key findings include that the simplification of language increases public comprehension more than the inclusion of visuals, and that public comprehension can be improved by making monetary policy messages relatable to people's lives. Relatable content also increases the public's trust in central bank communications, and improves people's perceptions of the central bank. Our findings shed light on how central banks can improve communication with the public at a time when trust in public institutions has fallen, while the responsibilities delegated to central banks have increased.
... Es decir, el efecto para los títulos a 5 y 10 años no difiere de forma significativa. Resultados similares son obtenidos por Bulíř et al. (2013). ...
Este artículo examina los efectos de la comunicación del banco central sobre los títulos de deuda pública para una economía emergente. Se toma como estudio de caso la economía colombiana con datos referentes al periodo de 2008 a 2016 y se analizan los comunicados de prensa, las minutas y los reportes de inflación. Los hallazgos indican que la comunicación tiene efectos importantes sobre el nivel de los retornos de los títulos de deuda pública al día siguiente de los anuncios del banco central, y el efecto es mayor para las minutas de política monetaria.
... The way in which our indicators are constructed very much follows the procedure underlying the socalled KOF Monetary Policy Communicator (MPC), as published by the KOF Swiss Economic Institute and used, e.g., bySturm and de Haan (2011),Conrad and Lamla (2010),Lamla and Sturm (2013),Bulíř et al. (2013) andNeuenkirch (2013). The key difference is that the MPC is a leading indicator for monetary policy and therefore considers only forward-looking statements regarding prices. ...
Economists and central bankers nowadays believe that forward guidance has become more important in a world in which key interest rates have hit their effective lower bounds (ELB). In the case of the European Central Bank (ECB), forward guidance should have increased the informational content of the introductory statements at the press conferences following ECB policy meetings. We examine whether such ECB communication adds information to a shadow interest rate that summarizes the overall policy stance as interpreted by financial markets. To measure communication, we use information based on ECB press releases distinguishing between topics like inflation, the real economy and monetary developments. We also look at the effect of communication on consensus expectations about key macroeconomic variables. The ECB’s assessment of the economy, i.e., communication related to economic growth, triggers movements in financial markets and thereby the shadow rate. Communication of the ECB through its press releases also causes professional forecasters to change their outlooks. Not only are their growth forecasts affected, but so are their expectations for M3 growth and inflation.
... There is also growing evidence from the media economics literature about media bias (Gentzkow and Shapiro, 2010) (Mishkin, 2004), clear (Bulíř, et al. (2013a) ;Bulíř, et al. (2013b); Siklos (2003); Winkler (2002)) and predictable (including Ehrmann and Fratzscher (2007); Poole and Rasche (2003)), or evaluating how various measures of inflation expectations move shortly after communication is released (Gürkaynack, et al. (2006);Gürkaynack, et al. (2005)). ...
Inflation is a monetary policy outcome, but in the short to medium term, price and wage decisions are co-determined by the public and private sectors. Many central banks have adopted transparency as a strategic policy approach, whereby communication of monetary policy goals is used as a public anchor. While the central bank’s strategy involves carefully crafted, deliberately simplified messages, most of the public tends to access inflation-related information through the media. In this article, we examine South African newspaper articles to identify how inflation is presented in the media and the role of the media, through this presentation, in the process of shaping public opinion around inflation expectations. We do this in two ways. First, we examine how inflation is presented in the media and then we identify the various actors presented in the media, their positions on inflation, and how these relate to each other. The systematic analysis of the media’s presentation of inflation allows us to identify some challenges to the central bank’s communication strategy.
... However, the increase in complexity of monetary policy during and after the financial crisis creates significant challenges for central bank communication (e.g., Bulíř, Čihák and Jansen, 2013a;Bulíř, Čihák and Šmídková, 2013b;Hernández-Murillo and Shell, 2014). As Peter Praet, former chief economist of the ECB, put it '[i]n normal times, central banks adapted their monetary policy stance by influencing the level of one short-term interest rate. ...
We empirically examine how complexity of ECB communications affects financial market trading based on high-frequency data from European stock index futures trading. Our sample covers ECB press conferences between January 2009 and December 2017, during which un-conventional monetary policy measures (UMPM) substantially increased communication complexity. Analysing the linguistic complexity of the introductory statements and differentiating between press conferences with and without UMPM-announcements, we find more complex communication, i.e. high linguistic complexity and UMPM-announcement, is associated with a lower level of contemporaneous trading activity. Moreover, complex communication leads to a temporal shift in trading activity towards the subsequent Q&A session, which suggests that Q&A sessions facilitate market participants' information processing. Finally, we document a relatively lower similarity of unconventional monetary policy statements and argue that this might explain our findings.
JEL-Classification: D83, E52, E58, G12, G14
... Therefore, legibility is an important part of this framework. Clarity relates to the clarity and legibility of texts (Jansen, 2011a and2011b;Bulíř et al., 2013;Montes et al., 2016;Jansen and Moessner, 2016;Mendonca and Nicolay, 2017;Montes and Nicolay, 2017). If someone has to process text with long words or sentences, it will be more difficult to understand the message (Jansen, 2011b). ...
Central bank communications play an important role in the monetary policy. In the inflation-targeting frameworks, central bank communications might guide public to shape inflation expectations and then determine actual inflation rates through which the policy interest rates policy would manage them. This paper studied the impact and central bank monetary policy communications on the policy interest rate. Unlike other studies, this paper uses two stages. First, we estimate the impact of central bank communication on the inflation expectation gap. Second, we use the estimated value of inflation expectation gap to predict the policy interest rate. The study found evidence that economic agents analyse the Governor Board of Central Bank of Indonesia meeting decisions every month to shape their inflation expectation. Therefore, the difference between inflation expectation and actual inflation tends to narrow. The inflation expectation gap affects the policy interest rates in Indonesia. In other words, the policy interest rates can control the inflation rate and anchor expectations as required by the inflation-targeting framework.
... Amaya et Filbien [2015] ;Hayo et Neuenkirch [2014] ;Bulir, Cihák et Jansen [2013]). Je considère également que si la structure des outils de communication des banques centrales est demeurée cohérente dans la période d'après-crise, cette dernière peut toujours avoir un impact significatif sur les marchés financiers. ...
This paper proposes an alternative method to assess the usefulness of central banks' forward guidance since the start of the global financial crisis. Using the Wordscores methodology, I provide a quantitative analysis of the size of the expansionary monetary impulses, as expressed through the forward guidance of three central banks: the European Central Bank, the Federal Reserve and the Bank of England. The findings reveal that since 2009, central banks' communication delivers important insights to financial market participants on the persistence of their (un)conventional monetary measures, and in particular, on the future occurrence of an exit strategy through the so-called Odyssean forward guidance.
How has the Crisis Affected the ‘Clean' Versus ‘Lean' Debate amongst Central Bankers?
Has the financial crisis led to a paradigm shift in monetary policy? In particular, has central banks' strategy to deal with financial stability changed? Does the central bankers' pre-crisis consensus on dealing ex post with the financial instability during the bust of the bubble (cleaning up the bust afterwards) still prevail? Or on the contrary do central bankers now prefer acting ex ante against the growth of the financial bubble (leaning against the wind)?
We examine whether the financial crisis has impacted this debate clean versus lean. We use the methods of the central bank communication literature. Ninety-four speeches on this debate, from members of the European Central Bank (ECB), the Federal Reserve (Fed) and the Bank of England, are studied over the period 2002-2012.
Two main results emerge from the analysis and coding of these speeches. First, following the crisis the consensus on the ‘clean' strategy is relaxed in the three central banks inspected. The ECB particularly becomes clearly favorable to the opposite strategy of ‘lean'. Secondly, yet, there is no signal of a new central banking paradigm on financial stability as the Bank of England and the Fed remain favorable to the ‘clean' strategy.
Classification JEL: D83, E52, G01.
Words are critical in how the public perceives the work of central banks and the quality of monetary policy. Press releases that accompany policy rate decisions and, where available, the minutes of central bank committee meetings, are focal points for the media in public discussions about the conduct of monetary policy. Using data from five countries, this chapter examines whether the language used by central banks has changed since the Global Financial Crisis (GFC) began. Briefly, the findings show that concerns about financial stability peaked just as the global financial crisis reached its zenith. However, concerns over uncertainty about the current and anticipated state of the economy have also risen over time. More generally, central bank speak became more aggressive throughout the crisis years. More conventional expressions about the current stance of monetary policy took a back seat to other concerns in central bank policy statements and minutes.
This article presents empirical evidence on the effect of regular Central Bank of Brazil
(CBB) communication on volatility and the direction of the interest rates futures
market. The volatility of interest rates in the financial market is observed before and
after publication of regular CBB communication. Moreover, the period without publication
(purdah period) is also considered. Hence, this article combines, in an original
manner, the idea presented by Ehrmann and Fratzscher for evaluation of the impact of
communication on financial market expectation, and the model developed by Kuttner ,
for analysis concerning the expectations hypothesis of the term structure of interest
rate. The findings support the idea that CBB communication has an effect on expectations
of changes in the interest rates and in the expected direction. Furthermore, CBB
communication is more effective when made in the periods before meetings of the
Monetary Policy Committee and publication of the respective minutes.
Words are critical in how the public perceives the work of central banks and the quality of monetary policy. Press releases that accompany policy rate decisions and, where available, the minutes of central bank committee meetings, are focal points for the media in public discussions about the conduct of monetary policy. Using data from five countries, this chapter examines whether the language used by central banks has changed since the Global Financial Crisis (GFC) began. Briefly, the findings show that concerns about financial stability peaked just as the global financial crisis reached its zenith. However, concerns over uncertainty about the current and anticipated state of the economy have also risen over time. More generally, central bank speak became more aggressive throughout the crisis years. More conventional expressions about the current stance of monetary policy took a back seat to other concerns in central bank policy statements and minutes.
We examine the record of the CD Howe’s shadow Monetary Policy Council (SMPC) in Canada. We report a considerable diversity of opinion about the recommended future path of interest rates inside the SMPC. During the period of Bank of Canada forward guidance, market determined forward rates diverge considerably from the recommendations implied by the SMPC. Nevertheless, there is little evidence that the Bank of Canada and the SMPC coordinate their future views about the interest rate path. Finally, changes in views about future changes in policy rates for horizons beyond the next two interest rate decisions are difficult to explain. Our findings imply that there remain challenges in understanding the evolution of future interest rate paths over time. We conclude with some policy implications.
Monetary policy announcements have a significant impact on financial market liquidity. This study provides a novel perspective on the factors driving this relationship in the market for 10-year Treasury note futures: Target rate surprises and the complexity of the monetary policy statement language are important determinants. Differences of opinion resulting from interpretation of complex language appear to result in more trading volume despite relatively low levels of liquidity (a negative liquidity-volume relationship), while large target rate surprises reduce trading activity (a positive liquidity-volume relationship). The dynamic changes over time, as unconventional polices are adopted by monetary authorities and, high frequency traders become more pervasive. Central bankers may aid market liquidity by minimizing surprises, and issuing statements that are easier to understand (with shorter sentences and more familiar words).
Purpose
The evidences concerning the effects of the Inflation Targeting (IT) regime as well as greater central bank transparency on monetary policy interest rates are not conclusive, and the following questions remain open. What is the effect of adopting IT on both the level and volatility of monetary policy interest rate? Does central bank transparency affect the level of the monetary policy interest rate and its volatility? Are these effects greater in developing countries? This study aims at contributing to the literature by answering these questions. Hence, the paper analyzes the effects of IT and central bank transparency on monetary policy.
Design/methodology/approach
The analysis uses a sample of 48 countries (31 developing) comprising the period between 1998 and 2014. Based on panel data methodology, estimates are made for the full sample, and then for the sample of developing countries.
Findings
Countries that adopt the IT regime tend to have lower levels of monetary policy interest rates, as well as lower interest rate volatility. The effect of adopting IT on both the level and volatility of the basic interest rate is smaller in developing countries. Besides, countries with more transparent central banks have lower levels of monetary policy interest rates, as well as lower interest rate volatility. In turn, the effect of central bank transparency on both the level and volatility of the basic interest rate is greater in developing countries.
Practical implications
The study brings important practical implications regarding the influence of both the IT regime and central bank transparency on monetary policy.
Originality/value
Studies have sought to analyze whether IT and central bank transparency are effective to control inflation. However, few studies analyze the influence of IT and central bank transparency on interest rates. This study differs from the few existing studies since: (i) the analysis is done not only for the effect of transparency on the level of the monetary policy interest rate, but also on its volatility; (ii) the central bank transparency index that is used has never been utilized in this sort of analysis, and; (iii) the study uses panel data methodology, and compares the results between different samples.
Central banks emphasize the use of communication as a tool of monetary policy. As central banks increasingly recognize that low public informedness limits their ability to communicate with the general public, several have begun to explicitly tailor their communication strategies for a broader audience. Most research focuses on central bank communication with financial markets, but several recent strands of literature address aspects of communication with households. I survey the literature addressing the rationales and efficacy of central bank communication with households, supplementing this with new evidence from an assortment of consumer survey data. I draw from the literature on rational inattention, financial literacy, and political communication to suggest explanations for limited household receptiveness to central bank communications. Finally, I focus on one specific aim of central bank communication, which is to anchor inflation expectations. Previous literature finds that the announcement of an explicit inflation target helps anchor expectations among financial market participants. Using U.S. consumer survey data, I show that consumers’ expectations are imperfectly anchored and that the anchoring of more informed consumers’ expectations increased more than the anchoring of less informed consumers’ expectations following the Fed’s announcement of a 2% inflation target.
The article reveals approaches to evaluate transparency of the central banks and, operating indices, measures it for the National bank of Ukraine. The quantitative analysis of the informational disclosure of the central banks of Ukraine, Czech Republic, Poland, and Russia is allocated. The aspects of the communications of the National Bank of Ukraine in the process of the monetary regime transformation are explored.
The literature about both sovereign risk spreads and central bank communication has evolved, but separately. The present study aims to fill this gap analyzing the relation between central bank communication and the sovereign risk spreads. We provide empirical evidence of the effects of economic transparency, monetary policy signaling and clarity of central bank communication over the sovereign risk spreads. The results indicate the sovereign risk spreads respond to the monetary policy signaling. Moreover, the central bank transparency and the clarity of the central bank communication can reduce the sovereign risk spreads.
This chapter assesses the communication strategies of the Federal Reserve (FED) and the European Central Bank (ECB), as well as their respective effectiveness. We explore the multi-dimensional aspects of the information embedded in more than 800 statements released by the heads of the EU and US central banks. Using tools from computational linguistics, we analyse the information released by these central banks on the state of economic conditions, as well as the guidance they provide about future monetary policy decisions. First, this chapter looks at some dimensions of the communication (tone, growth, ambiguity). Subsequently, we pay attention to the scenario’s impact on the communication strategies of the ECB and FED, assessing whether these strategies are influenced by certain variables that depict the scenario of the financial and real economy. Our results confirm the title of this chapter: most of the time, there is no significant difference between the communication strategy of the FED or the ECB, whether or not there is an improvement in the economic variables under consideration. We found that changes in communication strategy are mainly linked to changes in the health of the financial system.
Despite increasing communication efforts, it may be difficult for central banks to engage the public, as their language is often too difficult to understand for most citizens. Focusing on the case of the European Central Bank (ECB), we hypothesise that greater communication clarity is conducive to stronger engagement. We rely on readability metrics to measure the clarity of ECB communications. We show that communication clarity is a significant and robust predictor of the media engagement generated by the ECB with its speeches, press conferences and tweets. Our findings are validated by a placebo test and have significant policy implications for central bank communication.
The global financial crisis that has affected the world economy since the last quarter of 2008
has led many central banks to pursue unconventional monetary policies. This has been reflected upon
the communication policies of the central banks. As the policy interest rates reached closer to the zero
lower bound, central banks of developed economies have started communicating about the future
stance of the monetary policy. This tendency was mainly aimed at demolishing the uncertainties while
predicting the future policy decisions as well as generating additional accommodation. The so called
“forward guidance” has accordingly been used by the central banks of both developed and emerging
market economies. This study dwells upon the concept of forward guidance within the perspective of
central bank communication. The study discusses the forward guidance implementation of different
countries and evaluates the effects as well as challenges of forward guidance. Besides, it deliberates
the forward guidance implementations in Turkey.
The literature on expectation disagreements in emerging economies is scarce. This paper examines the disagreements in inflation expectations for the Colombian economy during the 2010–2017 period. We combine empirical tests with an analysis of a monthly survey of expectations of financial analysts in Colombia to obtain valuable evidence to formulate guidelines on the expectations modelling in developing economies. The findings indicate that disagreements present inertia and that inflation volatility increases disagreements. However, the central bank’s stance, as established through a press release, can reduce disagreement. Moreover, if central bank communication is clear and there is a credible inflation target, there tend to be fewer disagreements.
The literature about both sovereign risk spreads and central bank communication has
evolved, but separately. The present study aims to fill this gap analyzing the relation
between central bank communication and the sovereign risk spreads. We provide
empirical evidence of the effects of monetary policy signaling and clarity of central bank
communication over the sovereign risk spreads. The results indicate the sovereign risk
spreads respond to the monetary policy signaling. Moreover, the clarity of the central
bank communication can reduce the sovereign risk spreads.
Communication has evolved into a cornerstone of central bank design and policy implementation. The South African Reserve Bank has been proactive in this regard as well – most notably with the adoption of inflation targeting in 2001. Using novel text-mining techniques, we evaluate the communication of the SARB, as presented via public speeches and monetary policy committee (MPC) statements, in the context of historical developments from 1994 to 2020. Our analysis focuses on the volume, complexity, scope, and sentiment of communication. We conclude that MPC statements are consistently and narrowly focused on the mandate, whereas speeches capture more detail about how the thinking of SARB policy makers evolves over time. In both cases, communication serves as a channel to reduce uncertainty and build credibility in the public domain.
Inflation targeting requires clear and transparent central bank’s communication. Analysts and market participants understand it as a broad list of information disclosed by the central bank. The general public understands it rather as the ability of a central bank to speak and explain its decisions in a plain language. In recent decades, monetary authorities in many countries have made significant progress in this direction. However, there has been no research on the quality of communication for the Bank of Russia. This paper aims to create a tool for automated evaluation of the readability of the Bank of Russia’s monetary policy communication, taking into account the available experience of linguistic and textual analysis, including machine learning methods, as well as to provide recommendations for its improvement. This can contribute to improving the effectiveness of the Bank of Russia communication on monetary policy, which is vital for its credibility, anchoring inflation expectations, and predictability of the regulator’s decisions.
We examine the determinants of the dissent in central bank boards' voting records about monetary policy rates in the Czech Republic, Hun-gary, Sweden, the U.K. and the U.S. In contrast to previous studies, we consider about 25 different macroeconomic, financial, institutional, psy-chological or preference-related factors jointly and deal formally with the attendant model uncertainty using Bayesian model averaging. We find that the rate of dissent is between 5% and 20% in these central banks. Our results suggest that most regressors, including those capturing the ef-fect of inflation and output, are not robust determinants of voting dissent. The difference in central bankers' preferences is likely to drive the dissent in the U.S. Fed and the Bank of England. For the Czech and Hungarian central banks, average dissent tends to be larger when policy rates are changed. Some evidence is also found that food price volatility tends to increase the voting dissent in the U.S. Fed and in Riksbank. We thank Jakub Matějů for helpful discussions and Petra Gerlach-Kristen for sharing the U.S. data on the number of dissents of board members. We appreciate the use of Matlab toolbox for Bayesian model averaging developed by Martin Feldkircher and Stefan Zeugner. The views expressed in this paper are not necessarily those of the Czech National Bank. We acknowledge the support from the Grant Agency of the Czech Republic P402/10/0448.
The global financial crisis has renewed policymakers' interest in improving the policy framework for financial stability, and an open question is to what extent and in what form should financial stability reports be part of it. We examine the recent experience with central banks’ financial stability reports, and find - despite some progress in recent years - that forward-looking perspective and analysis of financial interconnectedness are often lacking. We also find that higher-quality reports tend to be associated with more stable financial environments. However, there is only a weak empirical link between financial stability report publication per se and financial stability. This suggests room for improvement in terms of the quality of financial stability reports.
Information gleaned from various sources.
-“A BRIEF DESCRIPTION” -
Quantum physics is the physical theory that describes the behavior of matter, radiation and all their interactions views as both wave phenomena as either particle phenomena (wave-particle duality), unlike the classical Newtonian physics based on Isaac Newton's theories or, which sees for example the light just like wave and the electron just as a particle.
***In May 1926, Schrödinger proved that Heisenberg's matrix mechanics and his own wave mechanics made the same predictions about the properties and behaviour of the electron; mathematically, the two theories had an underlying common form. Yet the two men disagreed on the interpretation of their mutual theory. For instance, Heisenberg accepted the theoretical prediction of jumps of electrons between orbitals in an atom, but Schrödinger hoped that a theory based on continuous wave-like properties could avoid what he called (as paraphrased by Wilhelm Wien) "this nonsense about quantum jumps."
The reconceived theory is formulated in various specially developed mathematical formalisms. In one of them, a mathematical function, the wave function, provides information about the probability amplitude of position, momentum, and other physical properties of a particle.
Important applications of quantum mechanical theory include uperconducting magnets, light-emitting diodes and the laser, the transistor and semicoductors such as the microprocessor, medical and research imaging such as magnetic resonance imaging magnetic resonance and electron microscopy, and explanations for many biological and physical phenomena.
Wave–particle duality is the fact that every elementary particle or quantic entity exhibits the properties of not only particles, but also waves.
It addresses the inability of the classical concepts "particle" or "wave" to fully describe the behavior of quantum-scale objects.
As Einstein wrote: "It seems as though we must use sometimes the one theory and sometimes the other, while at times we may use either. We are faced with a new kind of difficulty.
We have two contradictory pictures of reality; separately neither of them fully explains the phenomena of light, but together they do".
Visualization
There are two ways to visualize the wave-particle behaviour: by the "standard model" and by the Broglie–Bohm model, where no duality is perceived.
The more localized the position-space wavefunction, the more likely the particle is to be found with the position coordinates in that region, and correspondingly the momentum-space wavefunction is less localized so the possible momentum components the particle could have are more widespread.
Conversely the more localized the momentum-space wavefunction, the more likely the particle is to be found with those values of momentum components in that region, and correspondingly the less localized the position-space wavefunction, so the position coordinates the particle could occupy are more widespread.
When we do ,we form a the "superposition" of the individual matter waves,these superpositions turn out to have a central role in the theory of matter waves and in quantum theory as a whole.
The distances between adjacent peaks and troughs differ in different parts of the wave.
Wave–particle duality is an ongoing conundrum in modern physics.
Most physicists accept wave-particle duality as the best explanation for a broad range of observed phenomena; however, it is not without controversy. Alternative views are not generally accepted by mainstream physics, but serve as a basis for valuable discussion within the community.
When first discovered, particle diffraction was a source of great puzzlement.
Are"particles" really "waves?" .
Today it is possible to detect the arrival of individual electrons, and to see the diffraction pattern emerge as a statistical pattern made up of many small spots (Tonomura et al., 1989). Evidently, quantum particles are indeed particles, but whose behaviour is very different from classical physics would have us to expect.
It has been claimed that the Afshar experiment (2007) shows that it is possible to simultaneously observe both wave and particle properties of photons. This claim is, however, rejected by other scientists.
Wave–particle duality is exploited in electron microscopy, where the small wavelengths associated with the electron can be used to view objects much smaller than what is visible using visible light.
The nature of consciousness remains deeply mysterious and profoundly important, with existential, medical and spiritual implication.
We know what it is like to be conscious – to have awareness, a conscious ‘mind’, but who, or what, are ‘we’ who know such things?.
How is the subjective nature of phenomenal experience – our ‘inner life’ - to be explained in scientific terms? What consciousness actually is, and how it comes about remain unknown. The general assumption in modern science and philosophy - the ‘standard model’ - is that consciousness emerges from complex computation among brain neurons, computation whose currency is seen as neuronal firings (‘spikes’) and synaptic transmissions, equated with binary ‘bits’ in digital computing.
Consciousness is presumed to ‘emerge’ from complex neuronal computation, and to have arisen during biological evolution as an adaptation of living systems, extrinsic to the makeup of the universe. On the other hand, spiritual and contemplative traditions, and some scientists and philosophers consider consciousness to be intrinsic, ‘woven into the fabric of the universe’.
In these views, conscious precursors and Platonic forms preceded biology, existing all along in the fine scale structure of reality.
In this paper we analyse the introductory statement of the ECB President in his monthly press conference held on Governing Council meeting days. We provide a glossary that translates the qualitative information of the press conferences into an ordered scale. We find that the predictive ability of these statements is similar to that implied by market-based measures of monetary policy expectations. Moreover, ECB words provide complementary, rather than substitutable, information with respect to macroeconomic variables. Finally, we show that market expectations react to the unexpected component of the information released by the ECB, after controlling for the monetary policy shock.
Over the last two decades, communication has become an increasingly important aspect of monetary policy. These real-world developments have spawned a huge new scholarly literature on central bank communication—mostly empirical, and almost all of it written in this decade. We survey this ever-growing literature. The evidence suggests that communication can be an important and powerful part of the central bank’s toolkit since it has the ability to move financial markets, to enhance the predictability of monetary policy decisions, and potentially to help achieve central banks’ macroeconomic objectives. However, the large variation in communication strategies across central banks suggests that a consensus has yet to emerge on what constitutes an optimal communication strategy.
Forecasts are an inherent part of economic science and the quest for perfect foresight occupies economists and researchers in multiple fields. The release of economic forecasts (and its revisions) is a popular and often publicized event, with a multitude of institutions and think-tanks devoted almost exclusively to that task. The European Central Bank (ECB) also publishes its forecasts for the euro area, however ECB’s forecast accuracy is not a deeply researched theme. The ECB forecasts’ accuracy is the main point developed in this paper, which tries to contribute to understand the nature of the errors committed by the ECB forecasts and its main differences compared to other projections. What we try to infer is whether the ECB is accurate in its projections, making less errors than the others, maybe due to some informational advantage. We conclude that the ECB seems to consistently underestimate the HICP inflation rate and overestimate GDP growth. Comparing it with the others, the ECB shows a superior performance, committing almost always fewer errors. So, this signals a possible informational advantage from the ECB. Since the forecasting errors could jeopardize ECB’s credibility public criticism could be avoided if the ECB simply let forecasts for the others. Naturally, this change should be weighted against the benefits of publishing forecasts.
This paper calculates indices of central bank autonomy (CBA) for 163 central banks as of end-2003, and comparable indices for a subgroup of 68 central banks as of the end of the 1980s. The results confirm strong improvements in both economic and political CBA over the past couple of decades, although more progress is needed to boost political autonomy of the central banks in emerging market and developing countries. Our analysis confirms that greater CBA has on average helped to maintain low inflation levels. The paper identifies four broad principles of CBA that have been shared by the majority of countries. Significant differences exist in the area of banking supervision where many central banks have retained a key role. Finally, we discuss the sequencing of reforms to separate the conduct of monetary and fiscal policies. IMF Staff Papers (2009) 56, 263–296. doi:10.1057/imfsp.2008.25; published online 23 September 2008
Institutional review boards (IRBs) are charged with safeguarding potential research subjects with limited literacy but may have an inadvertent role in promulgating unreadable consent forms. We hypothesized that text provided by IRBs in informed-consent forms falls short of the IRBs' own readability standards and that readability is influenced by the level of research activity, local literacy rates, and federal oversight.
To test these hypotheses, we conducted a cross-sectional study linking data from several public-use sources. A total of 114 Web sites of U.S. medical schools were surveyed for IRB readability standards and informed-consent-form templates. Actual readability was measured with the Flesch-Kincaid scale, which assigns a score on the basis of the minimal grade level required to read and understand English text (range, 0 to 12). Data on the level of research activity, local literacy rates, and federal oversight were obtained from organizational Web sites.
The average readability score for text provided by IRBs was 10.6 (95 percent confidence interval, 10.3 to 10.8) on the Flesch-Kincaid scale. Specific readability standards, found on 61 Web sites (54 percent), ranged from a 5th-grade reading level to a 10th-grade reading level. The mean Flesch-Kincaid scores for the readability of sample text provided by IRBs exceeded the stated standard by 2.8 grade levels (95 percent confidence interval, 2.4 to 3.2; P<0.001). Readability was not associated with either the level of research funding (P=0.89) or local rates of literacy (P=0.92). However, the 52 schools that had been made subject to oversight by the Office for Human Research Protections (46 percent) had lower Flesch-Kincaid scores than the other schools (10.2 vs. 10.9, P=0.005).
IRBs commonly provide text for informed-consent forms that falls short of their own readability standards. Federal oversight is associated with better readability.
In this paper, we study the influence of central bank transparency and informal central bank communication on the formation of money market expectations. The sample covers nine major central banks from January 1999 to July 2007. We find, first, that transparency reduces the bias in money market expectations and dampens their variation. Second, informal communications help manage financial market expectations by reducing the variation of expectations. Third, various subcategories of the Eijffinger and Geraats (2006) transparency index lead to a smaller bias in expectations (in particular, evaluation of policy outcome and explanation of interest rate decisions) and to a reduction in the variation of expectations (in particular, explicit prioritization of objectives and provision of information on unanticipated macroeconomic disturbances).
Central banks, which used to be so secretive, are communicating more and more these days about their monetary policy. This development has proceeded hand in glove with a burgeoning new scholarly literature on the subject. The empirical evidence, reviewed selectively here, suggests that communication can move financial markets, enhance the predictability of monetary policy decisions, and perhaps even help central banks achieve their goals. A number of theoretical drawbacks to greater communication are also reviewed here. None seems very important in practice. That said, no consensus has yet emerged regarding what constitutes 'optimal' communication strategy - either in quantity or nature. This is part of a series of BIS Working Papers (273 to 278) collecting papers presented at the BIS's Seventh Annual Conference on 'Whither monetary policy? Monetary policy challenges in the decade ahead' in Luzern, Switzerland, on 26-27 June 2008. The event brought together senior representatives of central banks and academic institutions to exchange views on this topic. BIS Paper 45 contains the opening address of William R White (BIS), the contributions of the policy panel on 'Beyond price stability - the challenges ahead' and speeches by Edmund Phelps (Columbia University) and Martin Wolf (Financial Times). The participants in the policy panel discussion chaired by Malcolm D Knight (BIS) were Martin Feldstein (Harvard University), Stanley Fischer (Bank of Israel), Mark Carney (Bank of Canada) and Jean-Pierre Landau (Banque de France). This Working Paper includes comments by Benjamin M Friedman and YV Reddy.
The purpose of the paper is to investigate the presence of variability within the chairman’s address section of the annual report. The coefficiency of variation (V) is used as a simple statistical measure, with calculations based on three Flesch-based Reading Ease scores from 100-word passages of 120 annual reports of Hong Kong public companies for 1994/5. Vs range from 4.83 percent to 89.64 percent and 106 companies have Vs greater than 10 percent. Discernible reading ease patterns are shown to be present according to chi-square tests. Management propensity to obfuscate is introduced in the form of hypotheses, namely, companies with high variability and low readability will be associated with “bad news” and high levels of press coverage, this last variable being introduced into the readability literature for the first time. The obfuscation was accepted for companies with high financial press coverage.
The readability of annual reports has been the focus of extensive prior research. However, the extent of readability variability has only recently received specific attention. In response to a perceived need for further research into this area, an analysis of 60 UK chairman’s statements was conducted in order to test for possible determinants of readability variability. Results show the introduction to the chairman’s statement is systematically easier to read than other parts of the chairman’s statement. No evidence was found to support prior research that, rather than present accounting narratives objectively, managers use readability variability to emphasise good news and obfuscate bad news. The thematic structures within the chairman’s statement were investigated to explore whether they were responsible for systematic patterns in the variability of annual report readability. Findings indicate that thematic structure of the chairman’s statement is indeed a key driver of the variability of annual report readability.
In this paper, we study the influence of central bank transparency and informal central bank communication on the formation of money market expectations. The sample covers nine major central banks from January 1999 to July 2007. We find, first, that transparency reduces the bias in money market expectations and dampens their variation. Second, informal communications help manage financial market expectations by reducing the variation of expectations. Third, various subcategories of the Eijffinger and Geraats (2006) transparency index lead to a smaller bias in expectations (in particular, evaluation of policy outcome and explanation of interest rate decisions) and to a reduction in the variation of expectations (in particular, explicit prioritization of objectives and provision of information on unanticipated macroeconomic disturbances).
The article presents a novel methodology for measuring the clarity of central bank communication using content analysis, illustrating the methodology with the case of the European Central Bank (ECB). The analysis identifies the ECB's written communication as clear in about 85–95% of instances, which is comparable with, or better than, similar results available for other central banks. We also find that the additional information on risk to inflation and especially projection risk assessment contained in the ECB's Monthly Bulletins helps to improve communication clarity compared to ECB's press releases. In contrast, the bulletin's communication on monetary developments has a negative, albeit small, impact on clarity.
By applying readability statistics to the Humphrey-Hawkins testimonies given by the Federal Reserve Chairman, it is tested whether the clarity of central bank communication affects volatility in financial markets. There are three results. First, when clarity matters, it has a diminishing effect on volatility. Second, clarity of communication matters mostly for volatility of medium-term interest rates. Third, the effects of clarity vary over time. Clarity mattered especially, but not exclusively during Alan Greenspan's Chairmanship. Overall, the analysis illustrates the importance of transparent communication on monetary policy. (JEL E44, E52, E58)
We show how most Humphrey-Hawkins testimonies by Paul Volcker and Alan Greenspan were difficult to follow, implying the general public needs information through different, more accessible communications. Still, it is not obvious that Greenspan was increasingly 'mumbling with great incoherence'.
This paper explains how central bank statements, rather than open market operations, can be used to implement monetary policy. In the extreme, policy instruments can be held constant, and yet interest rates will evolve along the path desired by the central bank. We show how the recent implementation of monetary policy in New Zealand works in this way. Using announcement data from New Zealand, we find that open mouth operations lead to large changes in interest rates across all maturities, and these changes cannot be explained by open market operations. Implications are drawn for monetary policy in other jurisdictions.
We examine the effects of U.S. target rate changes and FOMC communications on European and Pacific equity market returns and find that both have a significant impact. European markets are influenced by a greater variety of communications than Pacific markets.
We explain federal funds target rate decisions using macroeconomic variables and Federal Reserve communication indicators. Econometrically, we employ an ordered probit model of a Taylor rule to predict 75 target rate decisions between 1998 and 2006. We find, first, that our communication indicators significantly explain target rate decisions and improve explanatory power in and out of sample. Second, speeches by members of the Board of Governors and regional presidents have a statistically significant and equal-sized effect, whereas the less-frequent monetary policy reports and congressional hearings are insignificant. Third, our findings are robust to variations in the specification, including changes in the communication strategy. Finally, our communication indicator based on Federal Reserve speeches performs better in explaining target rate decisions than do newswire reports of Fed communications.
Central bank transparency has become the topic of a lively public and academic debate on monetary policy. However, this has been complicated by the fact that transparency is a qualitative concept that is hard to measure. This paper proposes an index for the transparency of monetary policy that comprises the political, economic, procedural, policy and operational aspects of central banking. The index is compiled for nine major central banks. It is based on a detailed analysis of actual information disclosure and reveals a rich variety in the degree and dynamics of central bank transparency.
We propose a test of the null hypothesis that an observable series is stationary around a deterministic trend. The series is expressed as the sum of deterministic trend, random walk, and stationary error, and the test is the LM test of the hypothesis that the random walk has zero variance. The asymptotic distribution of the statistic is derived under the null and under the alternative that the series is difference-stationary. Finite sample size and power are considered in a Monte Carlo experiment. The test is applied to the Nelson-Plosser data, and for many of these series the hypothesis of trend stationarity cannot be rejected.
Using new data on the term in office of central bank governors for a large set of countries for 1970–2005, we estimate a model for the probability that a central bank governor is replaced before the end of his legal term in office. We formulate hypotheses based on the literature on the determinants of central bank independence that are tested using conditional logit models and the robustness approach of Sala-i-Martin (1997). We conclude that, apart from the share of the legal term in office that has elapsed, political and regime instability, the occurrence of elections, and the ratio of private credit to GDP increase the probability of a turnover.
Does the general public know what central banks do? Is this kind of knowledge relevant? Using a survey of Dutch households, we investigate these questions for the case of the European Central Bank (ECB). Our findings suggest that knowledge on the ECB’s objectives is far from perfect. Both a weak desire to be informed and unawareness of insufficient knowledge are barriers for improving the public's understanding of monetary policy. However, our results also show that more intensive use of information improves understanding, suggesting that the media channel may play an important and constructive role in building knowledge. Finally, we find that knowledge on monetary policy objectives contributes to an individual’s ability to form realistic inflation expectations.
The paper assesses the communication strategies of the Federal Reserve, the Bank of England, and the European Central Bank and their effectiveness. We find that the effectiveness of communication is not independent from the decision-making process. The paper shows that the Federal Reserve has been pursuing a highly individualistic communication strategy amid a collegial approach to decision making, while the Bank of England is using a collegial communication strategy and highly individualistic decision making. The European Central Bank (ECB) has chosen a collegial approach both in its communication and in its decision making. Assessing these strategies, we find that predictability of policy decisions and the responsiveness of financial markets to communication are equally good for the Federal Reserve and the ECB. This suggests that there may not be a single best approach to designing a central bank communication strategy. Copyright 2007 The Ohio State University.
Paper presented at the Federal Reserve Bank of Kansas City Symposium "The Greenspan Era: Lessons for the Future" - Jackson Hole, Wyoming, August 25-27, 2005.
This paper calculates indices of central bank autonomy (CBA) for 163 central banks as of end-2003, and comparable indices for a subgroup of 68 central banks as of the end of the 1980s. The results confirm strong improvements in both economic and political CBA over the past couple of decades, although more progress is needed to boost political autonomy of the central banks in emerging market and developing countries. Our analysis confirms that greater CBA has on average helped to maintain low inflation levels. The paper identifies four broad principles of CBA that have been shared by the majority of countries. Significant differences exist in the area of banking supervision where many central banks have retained a key role. Finally, we discuss the sequencing of reforms to separate the conduct of monetary and fiscal policies. IMF Staff Papers (2009) 56, 263–296. doi:10.1057/imfsp.2008.25; published online 23 September 2008
We present a new approach to study empirically the effect of the introduction of the euro on currency invoicing. Our approach uses a compositional multinomial logit model, in which currency choice depends on the characteristics of both the currency and the country. We use unique quarterly panel data of Norwegian imports from OECD countries for the 1996-2006 period. One of the key findings is that the eurozone countries in trade with Norway have substantially increased their share of home currency invoicing after the introduction of the euro. In addition, the euro as a vehicle currency has overtaken the role of the US dollar in Norwegian imports. The econometric analysis shows a significant effect of euro introduction above and beyond the determinants of currency invoicing (i.e., inflation rate, inflation volatility, foreign exchange market size, and product composition). However, the rise in producer currency invoicing by eurozone countries is primarily caused by a drop in inflation volatility.
It is shown that the voting record of the Monetary Policy Committee of the Bank of England helps predict future policy rate changes. This result is robust to the inclusion of market participants' expectations as measured by the slope of the term structure of money market rates and interest rate futures. Moreover, expectations seem to adjust to the information contained in the voting record, which suggests that publishing the minutes of MPC meetings increases the transparency of monetary policy. Copyright The editors of the "Scandinavian Journal of Economics", 2004 .
Monetary policy and central bank communication: complements or substitutes? Comments on Blinder
- B M Friedman
Content analysis for the social sciences and humanities
- O R Holsti
- OR Holsti
Central bank communication on financial stability
- B Born
- M Ehrmann
- M Fratzcher