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Effective Policy Communication: Targets versus Instruments

Author

Listed:
  • Francesco D'Acunto

    (Boston College - Carroll School of Management)

  • Daniel Hoang

    (Karlsruhe Institute of Technology - Department for Finance and Banking)

  • Maritta Paloviita

    (Bank of Finland)

  • Michael Weber

    (University of Chicago - Booth School of Business; NBER)

Abstract
Communication targeting households and ï¬ rms has become a stand-alone policy tool of many central banks. But which forms of communication, if any, can reach ordinary people and manage their economic expectations effectively? In a large-scale randomized control trial, we show that communication manages expectations when it focuses on policy targets and objectives rather than on the instruments designed to reach such objectives. It is especially the least sophisticated demographic groups, which central banks typically struggle to reach, who react more to target-based communication. When exposed to target-based communication, these groups are also more likely to believe that policies will beneï¬ t households and the economy. Target-based communication enhances policy effectiveness and contributes to strengthen the public’s trust in central banks, which is crucial to guarantee the credibility of their policies.

Suggested Citation

  • Francesco D'Acunto & Daniel Hoang & Maritta Paloviita & Michael Weber, 2020. "Effective Policy Communication: Targets versus Instruments," Working Papers 2020-148, Becker Friedman Institute for Research In Economics.
    • Handle: RePEc:bfi:wpaper:2020-148
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    File URL: https://repec.bfi.uchicago.edu/RePEc/pdfs/BFI_WP_2020148.pdf
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    References listed on IDEAS

    as
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    More about this item

    Keywords

    Behavioral macroeconomics; heterogeneous beliefs; limited cognition; expectations formation; household finance;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E65 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Studies of Particular Policy Episodes

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