ECB communication as a stabilization and coordination device: Evidence from ex-ante inflation uncertainty

Arbeitspapier

This paper investigates the impact of ECB communication of its assessment of the economic outlook on ex-ante inflation uncertainty and sheds light on how central bank information shocks operate. The paper finds that ECB communication of new outlook information not only reduces professional forecasters' disagreement (i.e., the cross-sectional dispersion of their average point forecasts of inflation) but also makes forecasters less uncertain about their own beliefs, thus reducing ex-ante average individual uncertainty. By combining and exploiting these types of ex-ante inflation uncertainty, results suggest that central bank information acts as a "coordination device" able to influence opinions and actions. Most importantly, it generates a "stabilizer effect" by substantially decreasing the dispersion among the inflation point forecasts, which converge towards their unconditional aggregate mean. The results of this paper not only help to explain the impact of new central bank information, but they are also useful for policymakers to define a communication strategy that attenuates ex-ante inflation uncertainty in the most effective way.

Object Details

• ISBN: 978-92-899-4805-0
• Language: Englisch

References and Relationships

• Bibliographic citation: Series: ECB Working Paper ; No. 2582

Classification and Topics

• Classification: Wirtschaft ; Search; Learning; Information and Knowledge; Communication; Belief; Unawareness ; Monetary Policy ; Central Banks and Their Policies ; Studies of Particular Policy Episodes ; Information and Market Efficiency; Event Studies; Insider Trading
• Subject: central bank communication ; ex-ante inflation uncertainty ; inflation expectations ; euro area

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Fernandes, Cecilia Melo
• Event: Veröffentlichung
• (who): European Central Bank (ECB)
• (where): Frankfurt a. M.
• (when): 2021

Further information

• DOI: doi:10.2866/08390
• Handle: http://hdl.handle.net/10419/237721
• Last update: 10.03.2025, 11:41 AM CET