My book examines how/why central bank communications vary over time and across cases. My argument is that preciseness of central bank communications depends on the strategic behavior of central bank committee members. My theory suggests that when committee members have divergent preferences, central bankers present information more precisely than if there was either a single authority making monetary policy or if committee members have aligned preferences. The contribution of theory is that I show how the level of central bank transparency on a committee is constrained by the preferences of the committee members. I then show how variation in the way that information is presented to the public helps explain variation in economic policy outcomes, especially inflation outcomes, across countries and over time.
In order to test these claims, I combine machine learning, experimental surveys, and statistical analysis. In one empirical chapter, I associate variation in central bankers’ preferences on the Federal Open Market Committee (FOMC) with variation in their official announcements. I find evidence that changes in the preferences of central bankers is associated with changes in the preciseness of public information. In a second empirical chapter, using an experimental survey of German households, I show that inflation expectations respond more to precise rather than vague central bank information. Finally, in a third empirical chapter, using a panel of countries from Latin America, I test the applicability of my argument for higher-inflation countries and over a longer time period.
One policy prescription that results from the findings is that governments can increase central bank accountability by appointing diverse central bankers and that differences in preferences protects against group think and strengthens mechanisms of peer-to-peer accountability. The findings thus speak to the literature on committee design and transparency.