Reputation for confidence

Laura Gáti and Amy Handlan

No 3141, Working Paper Series from European Central Bank

Abstract: In a cheap-talk communication game, we model how a sender communicates their noisy forecasts while taking into account their own uncertainty (confidence) and the receiver’s perception of the sender’s uncertainty (reputation for confidence). This creates a mismatch between the sender’s and receiver’s interpretation of the announcement. This misunderstanding friction induces the sender to communicate with partial transparency and deliberate imprecision. Moreover, with higher confidence (lower reputation) announcements are more precise. To test the theory, we leverage unique data on Federal Reserve communication deliberations to create new text-based measures as direct counterparts to the model. 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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Citations: View citations in EconPapers (1)

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