Inflation Targeting And Communication: Should The Public Read Inflation Reports Or Tea Leaves?

Inflation-targeting central banks have a respectable track record at explaining their policy actions and corresponding inflation outturns. Using a simple forward-looking policy rule and an assessment of inflation reports, the authors provide a new methodology for the empirical evaluation of consistency in central bank communication. They find that the three communication tools - inflation targets, inflation forecasts, and verbal assessments of inflation factors contained in quarterly inflation reports - provided a consistent message in five out of six observations in their 2000-05 sample of Chile, the Czech Republic, Hungary, Poland, Thailand, and Sweden.