How central banks actions are understood by the public?

There are quite a few papers on how financial markets interpret central bank actions. I mean the entire attention is there. But when you talk to a central banker they always say they are there for the public. Now how do you measure that?

In this Czech National Bank paper, authors look at this problem. They track the impact on public via media. People get to know of monetary policy through media. So they track how media reacts to mon pol actions.

Unlike the sophisticated audience (markets, analysts), which is directly influenced by announcements made by the central bank (available, for example, on its web site), the general public is indirectly reached by the bank primarily through the media. In this paper, we find it appropriate and useful to take a look back at the media’s perception of the CNB’s monetary policy decisions in the period of 2002–2007.

Findings are:

First, the media is in general qualitatively indifferent to the fact that the CNB surprises the market from time to time with its interest rate decisions. Simultaneously, such surprising decisions, i.e. those which are not priced in market interest rates yet before the meeting, attract the attention of the media, which manifests itself in more/longer articles.

Second, the media welcomes when the CNB moves interest rates and pays special attention to such decisions.

Third, the media does not like rising inflation but welcomes accelerating GDP growth, and vice versa.

Fourth, the new quarterly macroeconomic forecast attracts the attention of the media.

Finally, movements of the exchange rate are a good reason to write about the CNB’s monetary policy meetings with appreciation of the koruna exchange rate being negatively perceived in the media.

To sum up, the factors that turned out to be significant for the coverage of the CNB’s decisions suggest that the media seems to understand in principle (not in all aspects however) what the CNB usually does in the field of monetary policy, and why it does it, and pays proper attention to its decisions where appropriate.

I must admit that I didn’t read the full paper for its length. But looked interesting to me. It is a nice way to understand how media and public interpret monetary policy. Other central banks could also encourage these studies.


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