Talking Over Time ‐ Dynamic Central Bank Communication

Laura Gáti

Journal of Money, Credit and Banking, 2023, vol. 55, issue 5, 1147-1176

Abstract: This paper studies the optimal dynamic communication strategy of central banks using a Bayesian persuasion game framework. In a dynamic environment, financial market participants and the general public have misaligned interests because the present and future have different relevance in their optimization problems, leading to a novel trade‐off for the monetary authority. Compared to the static benchmark, I show that the central bank (CB's) optimal dynamic communication policy should put a higher weight on talking about the present state than the future. In addition, the CB should strategically send more noisy signals than in the static benchmark.

Date: 2023
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https://doi.org/10.1111/jmcb.12934

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Persistent link: https://EconPapers.repec.org/RePEc:wly:jmoncb:v:55:y:2023:i:5:p:1147-1176

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