Do words affect expectations? The effect of central banks communication on consumer inflation expectations

Magdalena Szyszko, Aleksandra Rutkowska and Agata Kliber

The Quarterly Review of Economics and Finance, 2022, vol. 86, issue C, 221-229

Abstract: In this paper, we sought to investigate the effect of communication by central banks on consumer inflation expectations. To this end, we ran investigations into six European economies that, between 2010 and mid-2019, implemented inflation targeting: the Czech Republic, Hungary, Poland, Romania, Sweden, and the UK. Consumer inflation expectations were derived from qualitative surveys and quantified by probabilistic method. The communication tone of the central banks was derived from their minutes. We applied the textual method and latent Dirichlet allocation technique to derive minutes content that describes decision and underling economic conditions. For the sample collected, we estimated, controlling for past inflation and industrial production index, panel models. As some data proved to be fractionally integrated, we applied double filtering using the autoregressive fractionally integrated moving average method to account for autocorrelation followed by multilevel modelling. We estimated the model for two vectors of controls and four lexicons. The results suggest that the communication tone of a central bank affects consumer inflation expectations. However, the direction of relationship is conditional on dictionary.

Keywords: Consumers expectations; Monetary policy tone; Monetary policy effects; ARFIMA-MLM; Fractional integration (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1062976922000850
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:86:y:2022:i:c:p:221-229

DOI: 10.1016/j.qref.2022.07.009

Access Statistics for this article

The Quarterly Review of Economics and Finance is currently edited by R. J. Arnould and J. E. Finnerty

More articles in The Quarterly Review of Economics and Finance from Elsevier
Bibliographic data for series maintained by Catherine Liu ().