Central banks

Messaging to a public with its own view on central bank confidence

We model central bank communication when there is disagreement between the markets and the central bank about the central bank’s confidence surrounding its point forecast. We show that such a disagreement leads the markets to misunderstand a given announcement, so that the markets either over- or underreact to the bank’s announcement. Communicating only a part of the central bank’s information set is a way to correct the markets’ over- or underreaction.

Pages

Subscribe to Central banks