The Benefits of Precise Policy Announcements
(Last updated January 2016)
Please note that information in this paper is from Chapter 5 in my OUP manuscript Crafting Consensus
Central banks and governments increasingly provide public economic information. While some research shows that governments and central banks communicate in ways that are beneficial, still others suggest that too much public information may be harmful. Little research considers the content of public information, however. For a given policy statement, is it better for governments to communicate using precise or vague language? I provide a simple mechanism that shows how increasing the preciseness of information helps lower inflation expectations and inflation, even in high inflation environments. I then test this mechanism using over 9,000 central bank and finance ministry inflation statements, gathered from 6 Latin American countries between 1993 and 2010. I find that more precise communications are associated with lower inflation outcomes.