Central Bank Communication of Uncertainty

Rayane Hanifi, Klodiana Istrefi and Adrian Penalver

Working papers from Banque de France

Abstract: In this paper, we examine how the monetary policy setting committees of the Federal Reserve, the Bank of England and the European Central Bank communicate their reaction to incoming data in their policy deliberation process by expressing confidence, surprise or uncertainty with respect to existing narratives. We use text analysis techniques to calculate forward and backward looking measures of relative surprise from the published Minutes of these decision-making bodies. We find many common patterns in this communication. Interestingly, policymakers tend to express more surprise and uncertainty with regard to developments in the real economy, whereas they are more likely to confirm their expectations with regard to inflation and monetary policy. When considering the monetary policy stance, we observe a tendency for policymakers to highlight surprise and uncertainty several meetings in advance of changes, particularly when easing monetary policy. Importantly, we document that a higher proportion of expressions of surprise and uncertainty increases the likelihood of an easier policy stance. By contrast, a higher proportion of expressions of confirmation tends to increase the likelihood of a tighter policy stance.

Keywords: Central Banks; Monetary Policy; Communication; Minutes; Uncertainty (search for similar items in EconPapers)
JEL-codes: C55 E52 E58 (search for similar items in EconPapers)
Pages: 36 pages
Date: 2022
New Economics Papers: this item is included in nep-ban, nep-big, nep-cba, nep-ifn and nep-mon
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Related works:
Working Paper: Central Bank Communication of Uncertainty (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:898

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