Central Bank Communication as Public Opinion : Experimental Evidence ∗

Political institutions increasingly communicate complex ideas to the public byway of press releases or social media. When asked directly, members of the public often report that they do not understand economic policy and find it complicated or unintelligible; this is especially true for monetary policy. Embedding a vignette experiment into two waves of a panel survey on German households, we examine the influence of monetary policy communications on households’ inflation expectations. We find that when presented with more precise information, households down-weight their priors and update in line with given information. We also examine whether those that are more news savvy, those who have favorable opinions of the European Central Bank (ECB), and those with closer policy preferences respond more (or less) to monetary signals. We find evidence that business news readers have stickier priors, while those with more favorable opinions of the ECB are most likely to be influenced by ECB communications. Finally, in examining the persistence of effects one year later, we find that, the conditioning on prior forecasts one-year ago, shorter and more precise statements exert a larger influence on inflation expectations. Our results are important for understanding the ways in which governmental actors inform the public on complicated policy topics and demonstrates how political opinions condition the effectiveness of central bank communications. ∗We would like to thank Matthias Haber, Hendrik Halbe, Alyssa Taylor, and Eliza Wirsching for helpful research assistance. Funding for this paper comes from the C4 project of the SFB 884 Political Economy of Reforms, University of Mannheim. Pretests of the first wave were also conducted by GESIS and the authors also thank Natalja Menold and Timo Lenzner for helpful advice and assistance. This is a working draft. Please do not cite without permission. †University of Essex. Corresponding author ‡University of Essex §Princeton University