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Enhancing central bank communications using simple and relatable information

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Abstract

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.

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... It is this same information that answers the expectations predicament alluded to earlier as this same information eases the "forecasting problem" as substantiated by Eusepi and Preston (2010:250). All the same, central bank communication is always improving and improvements are made by the day (Arseneau, 2020;Reid et al., 2020;Su et al., 2020;Anand et al., 2021;Anderes et al., 2021;Candian, 2021;Möller & Reichmann, 2021;Rholes & Petersen, 2021), hence making communication relatable to the general public would foster the public's understanding of monetary communications (Bholat et al., 2019). 12 ...
... This provides an entry point into the comparative examination of the MPC statements. As established by Bholat et al. (2019) whose study examined the public's understanding of Bank of England's Monetary Policy summaries, the visual summaries, and the inflation reports, it was found that short and relatable information from Bank of England fostered clarity hence showing the relevance of concise monetary information. ...
... As a policy recommendation, this study suggests an approach where SARB prioritises clarity and only focuses on information as a secondary facet to its monetary communications. This policy recommendation augments Bholat et al. (2019) whose study on Bank of England's communications revealed that simple communicative techniques increased public comprehension and trust in monetary and macroeconomic policy messages. In addition, a fundamental conclusion was that simplification of language increases public comprehension more than the inclusion of visuals. ...
Article
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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.
... It is this same information that answers the expectations predicament alluded to earlier as this same information eases the "forecasting problem" as substantiated by Eusepi and Preston (2010:250). All the same, central bank communication is always improving and improvements are made by the day (Arseneau, 2020;Reid et al., 2020;Su et al., 2020;Anand et al., 2021;Anderes et al., 2021;Candian, 2021;Möller & Reichmann, 2021;Rholes & Petersen, 2021), hence making communication relatable to the general public would foster the public's understanding of monetary communications (Bholat et al., 2019). 12 ...
... This provides an entry point into the comparative examination of the MPC statements. As established by Bholat et al. (2019) whose study examined the public's understanding of Bank of England's Monetary Policy summaries, the visual summaries, and the inflation reports, it was found that short and relatable information from Bank of England fostered clarity hence showing the relevance of concise monetary information. ...
... As a policy recommendation, this study suggests an approach where SARB prioritises clarity and only focuses on information as a secondary facet to its monetary communications. This policy recommendation augments Bholat et al. (2019) whose study on Bank of England's communications revealed that simple communicative techniques increased public comprehension and trust in monetary and macroeconomic policy messages. In addition, a fundamental conclusion was that simplification of language increases public comprehension more than the inclusion of visuals. ...
Article
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.
... Communication that builds on storytelling and examines what, why and how the ECB communicates from the audience's point of view may make it easier for people to take an interest in the first place and, ultimately, to better understand central bank information. To be more effective, the audience should be able to relate to the story (Bholat et al., 2019). The "stories" that central banks tell about their role and actions should be based on the aspects of policy decisions that the public can directly experience in their everyday lives. ...
... Communication is supplemented by the use of social media. Additionally, the Bank has been testing a narrative approach in which the decisions and related analysis are presented as stories the wider public can relate to and could directly experience in everyday life; see Bholat et al. (2019). ...
Technical Report
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This paper examines the importance of central bank communication in ensuring the effectiveness of monetary policy and in underpinning the credibility, accountability and legitimacy of independent central banks. It documents how communication has become a monetary policy tool in itself; one example of this being forward guidance, given its impact on inflation expectations, economic behaviour and inflation. The paper explains why and how consistent, clear and effective communication to expert and non-expert audiences is essential in an environment of an ever-increasing need by central banks to reach these audiences. Central banks must also meet the demand for more understandable information about policies and tools, while at the same time overcoming the challenge posed by the wider public’s rational inattention. Since the European Central Bank was established, the communications landscape has changed dramatically and continues to evolve. This paper outlines how better communication, including greater engagement with the wider public, could help boost people’s understanding of and trust in the Eurosystem.
... Finally, we test the robustness of our results to different model specifications and operationalisations of communication clarity. Taken together, these findings contribute to a lively debate on the appropriate balance between different features of central bank communication (e.g., Bholat et al. 2019;Istrefi 2019b) and have significant implications, especially in light of the ongoing review of the ECB's policy strategy. ...
... Consistent with other recent contributions (e.g., Bholat et al. 2019), our results provide support for policy efforts aimed at reducing the degree of complexity of central bank communications targeted at the public. Yet, as pointed out by Istrefi (2019b), it is also important to acknowledge that there may be tradeoffs between increased communication, simplicity and the need to convey correctly central bank messages. ...
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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.
... Cornand & M'baye, (2018) show that communication also interacts well with Taylor rule objectives. In a learning-to-forecast experiment in a New Keynesian model, they show that, if the central bank cares only about inflation stabilization as Bholat et al., (2019) in an inflation targeting regime and follows the Taylor principle, then communication of its inflation target does not make a difference in terms of macroeconomic performance. However, if the Taylor rule also conditions on output stabilization as in a dual mandate regime, then communicating the inflation target helps to reduce the volatility of inflation, interest rates and the output gap. ...
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This paper discusses how macroeconomics can and already has begun to make use of controlled experimental methods to address the assumptions and predictions of macroeconomic models as well as to evaluate the impacts of macroeconomic policy interventions. Specific issues addressed include rational expectations and alternatives, intertemporal optimization with an application to household consumption and savings decisions and the efficacy of various monetary policies.
... Additionally, the responsibilities that have been assigned to central banks over time provide them with structural power and freedom that few other public authorities and institutions have (Blinder, 2004;Dyson, 2009;McPhilemy and Moschella, 2019). Therefore, it is not surprising that central banking has received a lot of interest from various disciplines, like law (Zhou and Li, 2006;Masciandaro and Quintyn, 2009;Staikouras and Triantopoulos, 2016), economics (Kim and Kim, 2007;Bholat et al., 2019), political science (Masciandaro, 2007;Hayat and Farvaque, 2012), and public administration (McPhilemy and Moschella, 2019;Moschella and Pinto, 2019). ...
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Central banks play an important role in the economy. They are responsible for the conduct of monetary policy, and in several countries, they get involved in the supervision of the financial sector. We derive a simple theoretical model to illustrate how culture may influence a politician's choice of regulatory architecture and the assignment of responsibilities when anticipating the impact of that regime on the regulatory agencies’ incentives to cooperate. Using a sample of around 70 countries during the period 1996-2013 we confirm that the extent of supervisory duties that are allocated to the central bank are influenced by national culture. More specifically, consistent with the theoretical predictions, we find that individualism is positively associated, and power distance is negatively associated, with the likelihood of higher central bank involvement in supervision.
... Second, we enrich the literature on central bank communication. While existing research mostly looks at central bank announcements to the public through press conferences (Altavilla et al., 2019;Lamla and Vinogradov, 2019), publications (Bholat et al., 2019;Hansen et al., 2019;Born et al., 2014), speeches (Neuhierl and Weber, 2019), minutes of their meetings (Hansen et al., 2017;Apel and Blix-Grimaldi, 2012), our work is the first to explore the communication between central banks and parliaments in a comparative setting (Schonhardt-Bailey, 2013 andSanders et al., 2018 examine the parliamentary hearings of the Fed and the BoE respectively to address different questions). ...
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As the role of central banks expanded, demand for public scrutiny of their actions increased. This paper investigates whether parliamentary hearings, the main tool to hold central banks accountable, are fit for this purpose. Using text analysis, it detects the topics and sentiments in parliamentary hearings of the Bank of England, the European Central Bank and the Federal Reserve from 1999 to 2019. It shows that, while central bank objectives play the most relevant role in determining the topic, unemployment is negatively associated with the focus of hearings on price stability. Sentiments are more negative when uncertainty is higher and when inflation is more distant from the central bank’s inflation aim. These findings suggest that parliamentarians use hearings to scrutinise the performance of central banks in line with their objectives and economic developments, but also that uncertainty is associated with a higher perceived risk of under-performance of central banks.
... Coibion et al. (2022a) andBholat et al. (2019) show that central bank communication can be made more effective by simplifying the language used and by making the content more directly relatable to people's lives.Stantcheva (2020) has highlighted how individuals' understanding and support for economic policy can be influenced by instructional videos that emphasise explanation of how policies work and what effect they have on economic agents.2 Carroll et al. (1994) andLudvigson (2004) have emphasized the role of consumer confidence on predicting spending. ...
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This paper introduces the Consumer Expectations Survey (CES), a new online, high frequency panel survey of euro area consumers’ expectations and behaviour. The paper also investigates whether public perceptions about fiscal support measures introduced during the pandemic have influenced spending behaviour. We show that simple and factual information treatments about government support policies that are communicated to random subsets of respondents can help improve consumers’ perceptions about the adequacy of fiscal interventions relative to that of an untreated control group. We find evidence that this improvement in beliefs has a causal effect on consumer spending, in particular raising spending on large items like holidays and cars. Moreover, we show that such beliefs influence household expectations about own income prospects, future access to credit and financial sentiment, while they do not affect expectations about future taxes, implying no evidence of Ricardian effects in household behaviour. We find that perceptions affect spending also among households that did not receive any government support, suggesting that fiscal interventions can have broader consequences as they influence the behaviour of groups beyond the targeted ones.
... This process can be roughly divided into four steps: data selection, data cleaning, information extraction, and analysis of that information. Our tutorial explains each step and shows how it can be executed and implemented using the 1 Usually in Adobe PDF or Microsoft Word formats. 2 See, for instance, Carley (1993), Ehrmann and Fratzscher (2007), Lucca and Trebbi (2009), Bholat et al. (2015), Hansen and McMahon (2016), Bruno (2017), Bholat et al. (2019), Hansen et al. (2019), Calomiris and Mamaysky (2020), Benchimol et al. (2021), Correa et al. (2021), andTer Ellen et al. (2022). 3 open-source R software. ...
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... Our experimental results contribute to a growing literature in central bank communication has shown that relevant and straightforward to understand communications are more effective at managing expectations. For instance, in a recent Bank of England survey experiment, participants were much more likely to comprehend central bank communication and convey trust in the BoE when presented with simple, relatable information (Bholat et al. 2019). ...
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... The points above may have positive implications for central bank research endeavours in which case, econometric approach can be combined with variety of instruments like (inflation expectation) surveys to elucidate concerns pertaining to inflation dynamics and perception about trends in economic outputs (Milliken, 2020;Barrios and Hochberg, 2020;Bholat et al, 2019). In the interest of accommodating variety, the use of econometric model approach can be synthesized with non-traditional economic approaches (connected with subjective forecast and other innovative means of surveys), which technically support the proposed new entrant (MRS) in the domain of research plurality. ...
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The theoretical discourse of pluralism in this paper has paved the way for central banks research approach to accommodate variety in methodological application, which currently seem to be skewed in the direction of monism. In the interest of ensuring welfare concern for citizens is addressed in the best possible way, this paper has expanded its discourse to incorporate economic pluralism that favours variety of methods. This notably include qualitative and quantitative approaches, with the emphasis of digressing on the new entrant of Mixed Research Synthesis (MRS). Such an approach will seek to explore research capacity in support of addressing opportunities for decent citizens' welfare as the impact of COVID-19 unfold itself.
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We present a lab-field experiment designed to systematically assess the external validity of social preferences elicited in a variety of experimental games. We do this by comparing behavior in the different games with several behaviors elicited in the field and with self-reported behaviors exhibited in the past, using the same sample of participants. Our results show that the experimental social preference games do a poor job explaining both social behaviors in the field and social behaviors from the past. We also include a systematic review and meta-analysis of previous literature on the external validity of social preference games.
Article
Information frictions play a central role in the formation of household inflation expectations, but there is no consensus about their origins. We address this question with novel evidence from survey experiments. We document two main findings. First, individuals in low inflation contexts have significantly weaker priors about the inflation rate. This finding suggests that rational inattention may be an important source of information frictions. Second, cognitive limitations also appear to be a source of information frictions: Even when information about inflation statistics is available, individuals still place a significant weight on inaccurate sources of information, such as their memories of the price changes of the supermarket products they purchase. We discuss the implications of these findings for macroeconomic models and policymaking.
Article
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.
Article
Using a new survey of firm managers, we investigate whether inflation expectations in New Zealand are anchored or not. In spite of 25 years of inflation targeting by the Reserve Bank of New Zealand, firm managers display little anchoring of such expectations. We document this finding along a number of dimensions. Managers are unaware of the identities of central bankers or of central banks' objectives, and they are generally poorly informed about recent inflation dynamics Their forecasts of future inflation reflect high levels of uncertainty and are extremely dispersed, and they are volatile along both short-run and long-run horizons. Similar results can be found for the United States using currently available surveys.
Book
American monetary policy is formulated by the Federal Reserve and overseen by Congress. Both policy making and oversight are deliberative processes, although the effect of this deliberation has been difficult to quantify. In this book, Cheryl Schonhardt-Bailey provides a systematic examination of deliberation on monetary policy from 1976 to 2008 by the Federal Reserve’s Open Market Committee (FOMC) and House and Senate banking committees. Her innovative account employs automated textual analysis software to study the verbatim transcripts of FOMC meetings and congressional hearings; these empirical data are supplemented and supported by in-depth interviews with participants in these deliberations. The automated textual analysis measures the characteristic words, phrases, and arguments of committee members; the interviews offer a way to gauge the extent to which the empirical findings accord with the participants’ personal experiences. Analyzing why and under what conditions deliberation matters for monetary policy, the author identifies several strategies of persuasion used by FOMC members, including Paul Volcker’s emphasis on policy credibility and efforts to influence economic expectations. Members of Congress, however, constrained by political considerations, show a relative passivity on the details of monetary policy. .
Article
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).
Article
Bar charts are one of the most common visualization types. In a classic graphical perception paper, Cleveland & McGill studied how different bar chart designs impact the accuracy with which viewers can complete simple perceptual tasks. They found that people perform substantially worse on stacked bar charts than on aligned bar charts, and that comparisons between adjacent bars are more accurate than between widely separated bars. However, the study did not explore why these differences occur. In this paper, we describe a series of follow-up experiments to further explore and explain their results. While our results generally confirm Cleveland & McGill's ranking of various bar chart configurations, we provide additional insight into the bar chart reading task and the sources of participants' errors. We use our results to propose new hypotheses on the perception of bar charts.
Article
We evaluate explanations for the absence of disinflation during the Great Recession and find popular explanations to be insufficient. We propose a new explanation for this puzzle within the context of a standard Phillips curve. If firms' inflation expectations track those of households, then the missing disinflation can be explained by the rise in their inflation expectations between 2009 and 2011. We present new econometric and survey evidence consistent with firms having similar expectations as households. The rise in household inflation expectations from 2009 to 2011 can be explained by the increase in oil prices over this time period.
Article
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, I examine whether the language used by central banks has changed since the global financial crisis (GFC) began.Briefly, I find 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.
Article
We compare the inflation expectations reported by consumers in a survey with their behavior in a financially incentivized investment experiment designed such that future inflation affects payoffs. The inflation expectations survey is found to be informative in the sense that the beliefs reported by the respondents are correlated with their choices in the experiment. Furthermore, most respondents appear to act on their inflation expectations showing patterns consistent (both in direction and magnitude) with expected utility theory. Respondents whose behavior cannot be rationalized tend to be less educated and to score lower on a numeracy and financial literacy scale. These findings are therefore the first to provide support to the microfoundations of modern macroeconomic models.
Article
This paper discusses the role of risk communication in macroprudential oversight and of visualization in risk communication. Beyond the soar in availability and precision of data, the transition from firm-centric to system-wide supervision imposes obvious data needs. Moreover, broad and effective communication of timely information related to systemic risks is a key mandate of macroprudential supervisors, which further stresses the importance of simple representations of complex data. Risk communication comprises two tasks: internal and external dissemination of information about systemic risks. This paper focuses on the background and theory of information visualization and visual analytics, as well as techniques provided within these fields, as potential means for risk communication. We define the task of visualization in internal and external risk communication, and provide a discussion of the type of available macroprudential data and an overview of visualization techniques applied to systemic risk. We conclude that two essential, yet rare, features for supporting the analysis of big data and communication of risks are analytical visualizations and interactive interfaces. This is illustrated with implementations of three analytical visualizations and five web-based interactive visualizations to systemic risk indicators and models.
Article
An ongoing debate in the Visualization community concerns the role that visualization types play in data understanding. In human cognition, understanding and memorability are intertwined. As a first step towards being able to ask questions about impact and effectiveness, here we ask: 'What makes a visualization memorable?' We ran the largest scale visualization study to date using 2,070 single-panel visualizations, categorized with visualization type (e.g., bar chart, line graph, etc.), collected from news media sites, government reports, scientific journals, and infographic sources. Each visualization was annotated with additional attributes, including ratings for data-ink ratios and visual densities. Using Amazon's Mechanical Turk, we collected memorability scores for hundreds of these visualizations, and discovered that observers are consistent in which visualizations they find memorable and forgettable. We find intuitive results (e.g., attributes like color and the inclusion of a human recognizable object enhance memorability) and less intuitive results (e.g., common graphs are less memorable than unique visualization types). Altogether our findings suggest that quantifying memorability is a general metric of the utility of information, an essential step towards determining how to design effective visualizations.
Article
While the established literature on central bank communication has traditionally dealt with communication of monetary policy messages to financial markets and the wider public, central bank communication on fiscal policy has so far received little attention. This paper empirically reviews the intensity of central banks’ fiscal communication by five central banks (the US Federal Reserve, the ECB, the Bank of Japan, the Bank of England and the Swedish Riksbank) over the period 1999-2011. To that end, it develops a fiscal indicator measuring the fiscal-related communication in minutes or introductory statements. Our findings indicate that the ECB communicates intensively on fiscal policies in both positive as well as normative terms. Other central banks more typically refer to fiscal policy when describing foreign developments relevant to domestic macroeconomic developments, when using fiscal policy as input to forecasts, or when referring to the use of government debt instruments in monetary policy operations. The empirical analysis also indicates that the financial crisis has overall increased the intensity of central bank communication on fiscal policy. It identifies the evolution of the government deficit ratio as a driver of the intensity of fiscal communication by central banks in the euro area, the US and Japan, and for Sweden since the start of the crisis. In England the fiscal share in central bank communication is related to developments in government debt as of the start of the crisis.
Article
Four studies examine the influence of attaching a seemingly insignificant Post-it note to a survey packet on the likelihood of completing the survey. Participants who received a packet with an affixed Post-it note request had significantly higher return rates than participants who received the identical survey with (a) no sticky note, (b) the same message written on the cover sheet but without a Post-it or (c) a blank Post-it with no message provided. Furthermore, they returned the materials more promptly with higher quality responses. A more personalized Post-it appeal increased returns when the survey was long and time consuming but was no more effective than a nonpersonalized Post-it when the survey was easy to complete. Results suggest that the Post-it leads the request to be interpreted as a solicitation for a personal favor, facilitating a normative compliance response.
Article
Purpose: Low patient health literacy has been associated with cost increases in medicine because it contributes to inadequate care. Providing explanatory text is a convenient approach to distribute medical information and increase health literacy. Unfortunately, writing text that is easily understood is challenging. This work tests two text features for their impact on understanding: lexical simplification and coherence enhancement. Methods: A user study was conducted to test the features' effect on perceived and actual text difficulty. Individual sentences were used to test perceived difficulty. Using a 5-point Likert scale, participants compared eight pairs of original and simplified sentences. Abstracts were used to test actual difficulty. For each abstract, four versions were created: original, lexically simplified, coherence enhanced, and lexically simplified and coherence enhanced. Using a mixed design, one group of participants worked with the original and lexically simplified documents (no coherence enhancement) while a second group worked with the coherence enhanced versions. Actual difficulty was measured using a Cloze measure and multiple-choice questions. Results: Using Amazon's Mechanical Turk, 200 people participated of which 187 qualified based on our data qualification tests. A paired-samples t-test for the sentence ratings showed a significant reduction in difficulty after lexical simplification (p<.001). Results for actual difficulty are based on the abstracts and associated tasks. A two-way ANOVA for the Cloze test showed no effect of coherence enhancement but a main effect for lexical simplification, with the simplification leading to worse scores (p=.004). A follow-up ANOVA showed this effect exists only for function words when coherence was not enhanced (p=.008). In contrast, a two-way ANOVA for answering multiple-choice questions showed a significant beneficial effect of coherence enhancement (p=.003) but no effect of lexical simplification. Conclusions: Lexical simplification reduced the perceived difficulty of texts. Coherence enhancement reduced the actual difficulty of text when measured using multiple-choice questions. However, the Cloze measure results showed that lexical simplification can negatively impact the flow of the text.
Article
The subject of graphical methods for data analysis and for data presentation needs a scientific foundation. In this article we take a few steps in the direction of establishing such a foundation. Our approach is based on graphical perception—the visual decoding of information encoded on graphs—and it includes both theory and experimentation to test the theory. The theory deals with a small but important piece of the whole process of graphical perception. The first part is an identification of a set of elementary perceptual tasks that are carried out when people extract quantitative information from graphs. The second part is an ordering of the tasks on the basis of how accurately people perform them. Elements of the theory are tested by experimentation in which subjects record their judgments of the quantitative information on graphs. The experiments validate these elements but also suggest that the set of elementary tasks should be expanded. The theory provides a guideline for graph construction: Graphs should employ elementary tasks as high in the ordering as possible. This principle is applied to a variety of graphs, including bar charts, divided bar charts, pie charts, and statistical maps with shading. The conclusion is that radical surgery on these popular graphs is needed, and as replacements we offer alternative graphical forms—dot charts, dot charts with grouping, and framed-rectangle charts.
Article
Central banks regularly communicate about financial stability issues, by publishing Financial Stability Reports (FSRs) and through speeches and interviews. The paper asks how such communications affect financial markets. Building a unique dataset, it provides an empirical assessment of the reactions of stock markets to more than 1000 releases of FSRs and speeches by 37 central banks over the past 14 years. The findings suggest that FSRs have a significant and potentially long-lasting effect on stock market returns, and also tend to reduce market volatility. Speeches and interviews, in contrast, have little effect on market returns and do not generate a volatility reduction during tranquil times, but have had a substantial effect during the 2007-10 financial crisis. The findings suggest that financial stability communication by central banks are perceived by markets to contain relevant information, and they underline the importance of differentiating between communication tools, their content and the environment in which they are employed.
Article
A simple procedure for multiple tests of significance based on individual p-values is derived. This simple procedure is sharper than Holm's (1979) sequentially rejective procedure. Both procedures contrast the ordered p- values with the same set of critical values. Holm's procedure rejects an hypothesis only if its p-value and each of the smaller p-values are less than their corresponding critical-values. The new procedure rejects all hypotheses with smaller or equal p-values to that of any one found less than its critical value.
Article
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.
Article
This paper studies the consumption decisions of agents who face costs of acquiring, absorbing and processing information. These consumers rationally choose to only sporadically update their information and re-compute their optimal consumption plans. In between updating dates, they remain inattentive. This behavior implies that news disperses slowly throughout the population, so events have a gradual and delayed effect on aggregate consumption. The model predicts that aggregate consumption adjusts slowly to shocks, and is able to explain the excess sensitivity and excess smoothness puzzles. In addition, individual consumption is sensitive to ordinary and unexpected past news, but it is not sensitive to extraordinary or predictable events. The model further predicts that some people rationally choose to not plan, live hand-to-mouth, and save less, while other people sporadically update their plans. The longer are these plans, the more they save. Evidence using U.S. aggregate and microeconomic data generally supports these predictions.
Article
Bad presentation of medical statistics such as the risks associated with a particular intervention can lead to patients making poor decisions on treatment. Particularly confusing are single event probabilities, conditional probabilities (such as sensitivity and specificity), and relative risks. How can doctors improve the presentation of statistical information so that patients can make well-informed decisions? The science fiction writer H. G. Wells predicted that in modern technological societies statistical thinking will one day be as necessary for efficient citizenship as the ability to read and write. How far have we got, a hundred or so years later? A glance at the literature shows a shocking lack of statistical understanding of the outcomes of modern technologies, from standard screening tests for HIV infection to DNA evidence. For instance, doctors, with an average of 14 years of profes- sional experience were asked to imagine using the Haemoccult test to screen for colorectal cancer. 1 2 The prevalence of cancer was 0.3%, the sensitivity of the test was 50%, and the false positive rate was 3%. The doctors were asked: What is the probability that someone who tests positive actually has colorectal cancer? The correct answer is about 5%. However, the doctors' answers ranged from 1% to 99%, with about half of them estimating the probability as 50% (the sensitivity) or 47% (sensitivity minus false positive rate). If patients knew about this degree of variability and statistical innumeracy they would be justly alarmed. Statistical innumeracy is often attributed to problems inside our minds. We disagree: The problem is not simply internal but lies in the external representation of information, and hence a solution exists. Every piece of statistical information needs a representation—that is, a form. Some forms tend to cloud minds, while others foster insight. We know of no medical institution that leaches the power of statistical representations; even worse, writers of information brochures for the public seem to prefer confusing representations. 2 3 Here we deal with three numerical representations that foster confusion: single event proba- bilities, conditional probabilities, and relative risks. In each case we show alternative representa- tions that promote insight (Table 1). These "mind tools" are simple to learn. Finally, we address questions of the framing (expression) and manipulation of information and how to minimise these effects.
Article
We investigate the effects of U.S. monetary policy on asset prices using a high-frequency event-study analysis. We test whether these effects are adequately captured by a single factor-changes in the federal funds rate target - and find that they are not. Instead, we find that two factors are required. These factors have a structural interpretation as a "current federal funds rate target" factor and a "future path of policy" factor, with the latter closely associated with Federal Open Market Committee statements.We measure the effects of these two factors on bond yields and stock prices using a new intraday data set going back to 1990. According to our estimates, both monetary policy actions and statements have important but differing effects on asset prices, with statements having a much greater impact on longer-term Treasury yields.
Central bank communication on financial stability
  • Born
Central bank communication. Speech given at European Central Bank PR Manager of the Year Award
  • M Draghi
Draghi, M. 2014. Central bank communication. Speech given at European Central Bank PR Manager of the Year Award. Available at: https://www.ecb.europa. eu/press/inter/date/2014/html/sp140804.en.html.
Understanding inflation: expectations and reality
  • S Tenreyro
Tenreyro, S. 2019. Understanding inflation: expectations and reality. Speech given at Birkbeck University of London on 10 July. Available at: https://www. bankofengland.co.uk/speech/2019/silvana-tenreyro-ronald-tress-memorial-lecture.