The Not So Quiet Revolution: signal and noise in central bank communication

Leonardo Ferreira, Caio Garzeri, Diogo Guillen, Antônio Lima and Victor Monteiro

No 635, Working Papers Series from Central Bank of Brazil, Research Department

Abstract: This paper quantifies the “prediction value” of different forms of central bank communication. Combining traditional econometrics and natural language processing, we test how much forecast-improving information can be extracted from the different layers of the Federal Reserve communication. We find that committee-wise communication (statements and minutes) and speeches by the Chair and the Vice Chair improve interest rate forecasts, suggesting that they provide additional information to understand the policy reaction function. However, individual communication beyond the Vice Chair, such as speeches by board members, other FOMC members, and Federal Reserve Bank presidents not sitting in FOMC, is not forecast improving and sometimes even worsens interest-rate forecasts. Based on our theoretical model, we interpret these results as suggesting that the Fed may have overcommunicated, providing excessive noise-inducing communication for forecasting purposes.

Date: 2025-11
New Economics Papers: this item is included in nep-big, nep-cba, nep-for, nep-mac and nep-mon
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