Simplicity in central bank communication
McMahon and Naylor analyze why central bank messages aren’t getting through to the public despite the high inflationary environment since 2022. They develop a simple rational inattention model, that includes the complexity of communications in an individual’s optimal attention allocation decision. They show that linguistic complexity reduces the degree to which people are willing to pay attention to messages communicated by the central bank. As a result, agents’ ability to form accurate beliefs about the economy and well-anchored expectations is diminished. The authors then look at the recent Bank of England efforts to simplify its communications and find that traditional measures of ‘semantic’ complexity have been reduced, but ‘conceptual’ complexity, captured by a novel measure, the McMahon Naylor Conceptual Complexity (MNCC) index they construct, declines less uniformly.
Experimental evaluation indicates that conceptual, not semantic, complexity is what matters for getting through. This is true even for individuals with economics degrees suggesting conceptual complexity matters for all audiences.
Getting through: Communicating complex central bank messages
Authors: Michael McMahon, Matthew Naylor
From: University of Oxford
Policy communication in high inflation environments
Weber et al. look at why central bank messages aren’t getting through to people from a different angle: how does the economic environment affect agents’ attention to central bank communication about inflation? They use randomized control trials (RCTs) applied over time in different countries, and find that attention to inflation is endogenous and varies with the level of inflation. The authors construct a unique collection of many RCTs fielded in nationally representative surveys of households and firms in which some individuals were provided with publicly available information about inflation, such as the most recent inflation rate or the central bank’s target. Their analysis includes data on U.S. households, euro-area households, and U.S. firms as well as additional evidence from firms in Uruguay (where inflation has been consistently high), firms in New Zealand (where inflation has been consistently low), and firms in Italy where the same agents are repeatedly provided information in both low- and high inflation environments. They find that when agents are attentive, the challenge is not reaching them, but instead what information needs to be relayed since they are already better informed and hence less responsive to communication.
Policymakers who are interested in shaping expectations to better stabilize economic outcomes should consider how the economic environment shapes the way to successfully communicate with the public.
Tell Me Something I Don’t Already Know: Learning in Low and High-Inflation Settings
Authors: Michael Weber, Bernardo Candia, Tiziano Ropele, Rodrigo Lluberas, Serafin Frache, Brent H. Meyer, Saten Kumar, Yuriy Gorodnichenko, Dimitris Georgarakos, Olivier Coibion, Geoff Kenny, Jorge Ponce
From: University of Chicago, University of California, Berkeley, Bank of Italy, Universidad ORT Uruguay, Universidad de Montevideo, Federal Reserve Bank of Atlanta, Auckland University of Technology, ECB, University of Texas at Austin, Banco Central del Uruguay
