Communicational Bias In Monetary Policy: Can Words Forecast Deeds?

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Communication with the public is an ever-growing practice among central banks and complements their decisions of interest rate setting. In this paper, the authors examine one feature of the communicational practice of the Central Bank of Chile (CBC) which summarizes the assessment of the Board about the most likely future of the monetary policy interest rate. They show that this assessment, known as communicational bias or simply c-bias, contains valuable information regarding the future stance of monetary policy. They do this by comparing, against several benchmarks, the c-bias's ability to correctly forecast the direction of monetary policy rates.