Reputation for Confidence

Laura Gáti and Amy Handlan

No 3141, Working Paper Series from European Central Bank

Abstract: We model how a central bank communicates its noisy forecasts (forward guidance) while taking into account its own uncertainty (confidence) and the public’s perception of the bank’s uncertainty (reputation for confidence). This creates a mismatch between the public and central bank’s interpretation of the bank announcement which induces the bank to communicate with partial transparency and deliberate imprecision. Moreover, with higher confidence (lower reputation) announcements are more precise. With text data from internal Fed documents and newspapers, we find communication patterns are largely consistent with the model except the Fed’s communication strategy underreacts to reputation compared to the model. JEL Classification: E52, E58, C49

Keywords: cheap talk; communication; forward guidance; reputation; text analysis (search for similar items in EconPapers)
Date: 2025-11
New Economics Papers: this item is included in nep-cba and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20253141

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