Central banks’ communication as reputation management: How the Fed talks under uncertainty

Abstract

This article advances a reputation‐based account to explain the relative salience that different issues assume in central banks’ communication. Based on an innovative dataset consisting of a corpus of speeches by the members of the Board of Governors of the Federal Reserve System of the United States (also known as the Fed) delivered from 2006 to 2016, the analysis shows that the most salient issues in the Fed's communication are shaped by reputational concerns about policy reversals. Specifically, when these concerns are higher, the Fed is more likely to focus on issues related to areas where its reputation is weak or not yet established—that is, issues related to credit easing and systemic financial regulation. In contrast, issues related to activities where the Fed's reputation is established are likely to become less salient—that is, issues related to economic activity and inflation. A similar pattern of issue attention is observed when the Fed addresses political audiences compared to other audiences.

Strategic communication by regulatory agencies as a form of reputation management: A strategic agenda

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“…1 It is a rich trove of data, one that has increasingly been mined by scholars using automated text analytic techniques (Fontan et al 2016;Bennani and Neuenkirch 2017;van Esch and de Jong 2019). This line of work dovetails with a broader interest by academics and central bankers in using quantitative content analysis to study central bank-related themes (Schonhardt-Bailey 2013;Bholat et al 2015;Golub et al 2015;Moschella and Pinto 2018).…”

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“…Because talk is not cheap, speeches are intimately connected to a central bank's reputation (Moschella & Pinto, ). Communicating their policy goals allows central bankers to avoid the market volatility associated with policy “surprises.” Consistent and predictable communications help them to establish credibility as agents of stability in the eyes of market participants, so that when the ECB makes a policy intervention, it has the intended effect on future expectations (Woodford, ).…”

“…Because talk is not cheap, speeches are intimately connected to a central bank's reputation (Moschella & Pinto, 2018). Communicating their policy goals allows central bankers to avoid the market volatility associated with policy "surprises."…”