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Amy Handlan
- 4 November 2025
- WORKING PAPER SERIES - No. 3141Details
- Abstract
- In a cheap-talk communication game, we model how a sender communicates their noisy forecasts while taking into account their own uncertainty (confidence) and the receiver’s perception of the sender’s uncertainty (reputation for confidence). This creates a mismatch between the sender’s and receiver’s interpretation of the announcement. This misunderstanding friction induces the sender to communicate with partial transparency and deliberate imprecision. Moreover, with higher confidence (lower reputation) announcements are more precise. To test the theory, we leverage unique data on Federal Reserve communication deliberations to create new text-based measures as direct counterparts to the model. We find communication patterns are largely consistent with the model except the Fed’s communication strategy underreacts to reputation compared to the model.
- JEL Code
- E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
C49 : Mathematical and Quantitative Methods→Econometric and Statistical Methods: Special Topics→Other
- 19 December 2022
- WORKING PAPER SERIES - No. 2759Details
- Abstract
- Does the Federal Reserve follow a communication rule? We propose a simple framework to estimate communication rules, which we conceptualize as a systematic mapping between the Fed’s expectations of macroeconomic variables and the words they use to talk about the economy. Using text analysis and regularized regressions, we find strong evidence for systematic communication rules that vary over time, with changes in the rule often being associated with changes in the economic environment. We also find that shifts in communication rules increase disagreement among professional forecasters and correlate with monetary policy surprise measures. Our method is general and can be applied to investigate systematic communication in a wide variety of settings.
- JEL Code
- E52 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Monetary Policy
E58 : Macroeconomics and Monetary Economics→Monetary Policy, Central Banking, and the Supply of Money and Credit→Central Banks and Their Policies
C49 : Mathematical and Quantitative Methods→Econometric and Statistical Methods: Special Topics→Other