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- Title
Dispersed communication by central bank committees and the predictability of monetary policy decisions.
- Authors
Ehrmann, Michael; Fratzscher, Marcel
- Abstract
The paper asks whether members of central bank decision-making committees should communicate with the public in a collegial manner, by conveying the consensus or majority view of the committee, or in an individualistic way, by providing the diversity of views among the committee members. It finds that more active as well as more consistent communication by committee members improves the predictability of monetary policy decisions significantly. This effect is sizeable as communication dispersion across committee members accounts on average for one third to one half of the market's prediction errors of FOMC policy decisions. Moreover, more active and more consistent communication are found to also reduce the degree of uncertainty about the future path of interest rates. These findings suggest that a collegial communication which stresses the consensus view on policy inclinations can enhance the effectiveness of central bank communication.
- Subjects
CENTRAL banking industry; MATHEMATICAL models of monetary policy; COMMITTEES; DECISION making in economic policy; INFORMATION sharing; COMMUNICATION in economics; ECONOMICS
- Publication
Public Choice, 2013, Vol 157, Issue 1/2, p223
- ISSN
0048-5829
- Publication type
Article
- DOI
10.1007/s11127-012-9941-0