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posted on 28 May 2016

Central Bank Communication Must Overcome The Publics Limited Attention Span

from the Dallas Fed

-- this post authored by Antonella Tutino

It is critical that central bankers have the ability to communicate their monetary policy goals and intentions involving employment and price stability to the public. The task is complicated in an economy that includes many firms and households in an era of information overload.

Central bank communications are an important monetary policy tool. Policymakers' economic outlooks, goals and intentions regarding future financial conditions are closely watched.

This is especially true when a central bank's primary policy instrument - the short-term interest rate - is near zero, a situation many advanced economies face today. The private sector relies on its perception of central bank economic expectations when it considers changes to its production of goods and services or the prices it charges for them.

Additionally, central bank short-term policy rate changes - in both low-rate and more normal-rate environments - fulfill an informational role, conveying assessments about risks to the economic outlook.

The public generally pays less attention to economic news than a central bank, which has hundreds of economists dedicated to processing information about current and future conditions. Moreover, the public is composed of many households and firms exposed to an abundance of material on many topics and has a limited ability and less incentive than central bankers to proC Central Bank Communication Must Overcome the Public's Limited Attention Span by Antonella Tutino cess or analyze economic information. Instead, it picks and chooses - exhibiting "rationally inattentive" behavior.2

[click on image below to continue reading]

Source: http://www.dallasfed.org/assets/ documents/ research/ eclett/2016/ el1606.pdf

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