Monetary Communication and Credibility in a Multi-Sector Economy

Antoine Camous and Dmitry Matveev

Working papers from Banque de France

Abstract: Central banks increasingly communicate sectoral narratives about inflation. We propose a theory of monetary communication in a multi-sector New Keynesian economy in which the central bank privately observes aggregate and sector-specific fundamentals and chooses both a policy instrument and a public message. Under commitment, the optimal disclosure rule has a sharp threshold structure: the central bank always discloses aggregate conditions and, depending on the extent of sectoral elasticities, sectors’ size, and price rigidities, either fully discloses both components or pools them into a single message. Without commitment, optimal communication is generically time-inconsistent: ex post, the central bank has an incentive to distort the disclosed message to influence firms’ posterior beliefs, yielding a communication analogue of the Barro-Gordon credibility problem in a multi-sector economy. In a dynamic extension with unobservable policymaker types, reputation partially disciplines communication but does not contribute to restore the commitment outcome, because welfare losses reflect type uncertainty rather than the strategic deviation itself. In an application to the euro area, the post-pandemic rise in price-adjustment frequency raises the likelihood that full sectoral disclosure is the optimal communication rule.

Keywords: Monetary Policy and Communication; Time Consistency and Credibility; Reputation; Bayesian Learning (search for similar items in EconPapers)
JEL-codes: D82 E52 E58 E61 (search for similar items in EconPapers)
Pages: 56 pages
Date: 2025
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Persistent link: https://EconPapers.repec.org/RePEc:bfr:banfra:1013

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