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What Drives Clarity of Central Bank Communication About Inflation?


This paper examines whether the clarity of central bank communication about inflation varies with the economic environment. Using readability statistics and content analysis, we study the clarity of communication on the inflation outlook by seven central banks across three continents during the recent decade. We uncover significant and persistent differences in clarity over time and across countries. However, identifying determinants of clarity that are robustly relevant across our sample of central banks proves elusive. Overall, our findings suggest that a single model for clarity of central bank communication is not appropriate. Rather, when studying clarity of communication, country-specific and institution-specific factors are highly relevant.

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  1. See Blinder et al. (2008) for a discussion of the literature up to 2008. Recent contributions on communication to financial markets include Brand et al. (2010), Hayo et al. (2010), Neuenkirch (2012), and Rosa (2011). Van der Cruijsen et al. (2010) study communication to the general public using a survey of Dutch households.

  2. The literature has widely discussed whether communication is a complement to or a substitute for interest rate policy. See, inter alia, Kohn (2008), Woodford (2005) or Friedman (2008) for various positions in this debate.

  3. The term “country”, as used in this paper, may include also territorial entities that are not countries, but for which separate economic statistics are produced.

  4. There is an analogy with a debate in the accounting literature that focuses on analyzing readability of corporations’ annual reports. For instance, Courtis (1998) finds some evidence that, rather than present accounting narratives objectively, managers use readability variability to emphasize good news and obfuscate bad news. However, other studies suggest that there is no such temporary variation (Clatworthy and Jones 2001).

  5. First, each verbal comment was catalogued into a major category and several subcategories: demand (fiscal, domestic cycle pressure, wages, external demand, domestic asset price bubbles, other), supply (weather and similar shocks, oil/gas prices, agricultural prices, capacity utilization, labor supply, regulated prices, structural changes, retail competition, indirect taxes, other), or external (exchange rates, global financial shocks, other). Second, factors putting upward/downward pressure on inflation were denoted as +1/−1 and neutral factors were denoted as 0. Below are some examples of our coding using the ECB’s Monthly Bulletins. The January 2003 issue contained the following sentence: “the current subdued pace of economic growth should contain inflationary pressures” and was coded as −1 in the demand category. The January 2003 bulletin noted “various increases in administered prices,” and was coded as +1 in the supply category.

  6. In addition to its objective nature, other reasons for choosing the Flesch–Kincaid measure include its convenience (the Flesch–Kincaid system is embedded in Microsoft Word), wide use in studies of readability, repeatability, and excellent comparability with other established readability scales, such as the fog index and the automated readability index. For instance, Kincaid and others (1975) have reported correlation coefficients of about 0.9 vis-à-vis alternative measures.

  7. In the interest of full disclosure, the FK grade level of our paper is 14.3 years.

  8. In the case of the ECB, communication is issued simultaneously in all member languages.

  9. The staff of the Czech National Bank provided further anecdotal evidence: virtually all questions and comments with respect to the CNB inflation reports have been written either in English or referred to the English version of the documents.

  10. Results for the KPSS-tests are available upon request.

  11. The front-page footnote in the English-language Chilean reports explicitly states the seniority of the Spanish original: “This is a translation of a document originally written in Spanish. In case of discrepancy or difference in interpretation the Spanish original prevails.” Central bank reports in other countries contain similar disclaimers.

  12. Jansen (2011a) also stresses that readability measures should be carefully interpreted.

  13. Our use of the FK grade level to approximate changes in clarity of communication does not mean that central banks necessarily actively use this particular readability measure in polishing their external communications. That said, much of the research on clarity of central bank communication is (co)authored by central bank staff, so this is an area of some interest. Perhaps more importantly, central banks employ professional editors and communication experts, underscoring the importance they attach to properly calibrating their external communications.

  14. Information on inflation targets and their changes was taken from the central bank documents or websites. Generally, inflation targets do not tend to change often, but our sample does contain some changes in inflation targets, which are reflected in the calculations. For example, in December 2003, the Bank of England’s target changed from 2.5 % retail price index (RPIX) inflation to 2 % inflation in the Consumer Price Index (CPI). Also, Chile, the Czech Republic, and Poland had declining inflation targets during the first few years of the sample. Data on the targeted inflation series, usually headline inflation based on either harmonized index of consumer prices (HICP) or regular index of consumer prices CPI indices, were taken from Haver Analytics.

  15. The construction of inflation forecasts differs across central banks. For example, the CNB’s forecast is fully endogenous, while BOE and ECB forecasts are, nowadays, conditional on market expectations. Other things equal, the CNB’s ex ante one-year inflation gap will likely be smaller than the BOE’s one: the policy rule, coupled with model-consistent expectations, ensures that the inflation forecast is at the target in a horizon of about 2 years. In our context, however, this is not a major issue. We are not focusing on cross-country comparisons, but rather on comparisons within a country, and the construction of inflation forecasts for our sample countries has been reasonably consistent.

  16. Research on financial stability communication is still scarce. For two recent contributions, see Born et al. (2011) and Čihák et al. (2012).


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We thank Michael Ehrmann, Jakob de Haan, Helge Berger, Caroline Silverman, Nico Valckx, Zdeněk Tůma, Tomáš Holub, and participants in the 16th Annual International Conference at the University of Crete and in seminars at the International Monetary Fund, the Czech National Bank, and De Nederlandsche Bank for useful suggestions and discussions. The paper also greatly benefited from comments by two anonymous referees. Jansen thanks the IMF Institute for hospitality during his stay as visiting scholar. Research assistance by Kazim Kazimov and Caroline Silverman is gratefully acknowledged. Views expressed in the paper do not necessarily coincide with those of the IMF, the World Bank, the Eurosystem, de Nederlandsche Bank, or the Czech National Bank.

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Correspondence to Aleš Bulíř.

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Bulíř, A., Čihák, M. & Jansen, DJ. What Drives Clarity of Central Bank Communication About Inflation?. Open Econ Rev 24, 125–145 (2013).

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  • Monetary policy
  • Communication
  • Inflation
  • Clarity
  • Transparency

JEL Classification

  • E52
  • E58