<abstract xmlns="http://www.w3.org/1999/xhtml"><p>Modern central banks increasingly value monetary policy transparency, and attempt to build credibility by communicating their decisions to the public. This paper studies whether the communication of central banks can be used to explain upcoming changes in their most important monetary policy instrument, the short-term refinancing rate, and whether the public can trust central bank communication during times of financial crisis.</p><p>This is done by constructing an indicator to measure the predictability of monetary policy by calculating the median of the policy makers’ official comments. The performance of this indicator is studied with ordered probit methods. The results show that predictability was reached relatively well at central bank level during the financial crisis despite the rapid growth of economic uncertainty, and that communication can be a useful tool for central banks during uncertain times.</p></abstract>

Modern central banks increasingly value monetary policy transparency, and attempt to build credibility by communicating their decisions to the public. This paper studies whether the communication of central banks can be used to explain upcoming changes in their most important monetary policy instrument, the short-term refinancing rate, and whether the public can trust central bank communication during times of financial crisis.This is done by constructing an indicator to measure the predictability of monetary policy by calculating the median of the policy makers’ official comments. The performance of this indicator is studied with ordered probit methods. The results show that predictability was reached relatively well at central bank level during the financial crisis despite the rapid growth of economic uncertainty, and that communication can be a useful tool for central banks during uncertain times.

Central Bank Communication and Monetary Policy Predictability under Uncertain Economic Conditions

Journal of Central Banking Theory and Practice

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

Modern central banks increasingly value monetary policy transparency, and attempt to build credibility by communicating their decisions to the public. This...

Central Bank Communication and Monetary Policy Predictability under Uncertain Economic Conditions

Published Online: May 22, 2019

Page range: 5 - 32

Received: Apr 20, 2018

Accepted: Jun 01, 2018

DOI: https://doi.org/10.2478/jcbtp-2019-0011

Keywords
Monetary Policy, Central banking, Communication, Central Banks and Their Policies

© 2019 Jonne O. Lehtimäki et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

Central Bank Communication and Monetary Policy Predictability under Uncertain Economic Conditions

Published Online: May 22, 2019

Page range: 5 - 32

Received: Apr 20, 2018

Accepted: Jun 01, 2018

DOI: https://doi.org/10.2478/jcbtp-2019-0011

KeywordsMonetary Policy, Central banking, Communication, Central Banks and Their Policies

© 2019 Jonne O. Lehtimäki et al., published by Sciendo

This work is licensed under the Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 License.

Keywords
Monetary Policy, Central banking, Communication, Central Banks and Their Policies