Journal of International Money and Finance (July 2021 issue, Vol. 115)
Working paper version:
SNB Working Paper 2020-17 (paper version July 2020)
Abstract:
We analyze the economic impact of central banks sensed by business executives in a sample of 61 countries from 1998 to 2016. Based on a survey conducted by the Institute for Management Development (IMD), we find compelling evidence that intensive central bank communication, as measured by the quantity of speeches, worsens the perceived impact. During the global financial crisis (GFC), this effect became even stronger. In contrast, economic growth and a positive output gap improve the opinion executives have of their central bank?s impact on the economy. Moreover, although less robustly, higher unemployment, and higher short-term interest rates worsen executives? opinion, while market uncertainty improves it. The level of inflation and an inflation targeting regime, central bank independence and transparency, financial crises, the zero lower bound constraint, forward guidance, the performance of the stock market, and the volatility of the exchange rate seem to be unimportant in this regard. A more detailed analysis shows that the effect of speeches depends on the identity of the speaker, the exchange-rate regime or an explicit employment mandate.
Media coverage of this paper:
International Journal of Central Banking (March 2020 issue, Vol. 16, No. 2, pp. 153 — 201)
Working paper versions:
WWZ Working Paper 2018-06 (paper version January 2018)
SNB Working Paper 2017-12 (paper version October 2017)
Abstract:
In a large sample of countries across different geographic regions and over a long period of time, we find limited country- and variable-specific effects of central bank transparency on forecast accuracy and their dispersion among a large set of professional forecasts of financial and macroeconomic variables. More communication even increases forecast errors and dispersion.
Media coverage of this paper:
- "Let's Not Return to the Bad Old Days of Central Bank Secrecy" (Bloomberg View, 14-Mar-2018).
- "A Cacophony of Central Bankers" (Wall Street Journal, 05-Mar-2018).
- "More frequent central bank communication worsens financial and macroeconomic forecasts" (Vox, CEPR's Policy Portal, 04-Mar-2018).
- "When central banks inform too much" ("Wenn Notenbanken zu viel informieren"; Zentralschweiz am Sonntag, 05-Nov-2017).
- "On forward guidance" (e-axes 360° Econ View, 12-Oct-2017).
- "Central Bankers Fare Better When They Are Tight Lipped" (Bloomberg, 11-Oct-2017).
- "More communication may hamper monetary policy, paper says" (Central Banking, 09-Oct-2017).
The data set for our communication measure is available upon request, see section Data.
In Expectations: Theory and Applications from Historical Perspectives
(March 2020, Springer Studies in the History of Economic Thought, Arie Arnon, Warren Young, Karine van der Beek (eds), Springer, pp. 215 — 238)
Working paper version
CEPR Discussion Paper DP13187 (paper version September 2018)
Abstract:
Even when all past and present information is known individuals usually remain uncertain about the permanence of observed variables. After reviewing the history and role of adaptive expectations and its statistical foundations in modeling this permanent-transitory confusion the paper investigates the consequences of this confusion for tests of market efficiency in the treasury bill and foreign exchange markets. A central result is that the detection of serial correlation in efficiency tests based on finite samples does not necessarily imply that markets are inefficient. The second part of the paper utilizes data on Israeli inflation expectations from the capital market to estimate the implicit speed of learning about changes in inflation and to examine the performance of adaptive expectations in tracking the evolution of those expectations during the 1985 Israeli shock stabilization as well as during the stable inflation targeting period.
Media coverage of this paper:
Working Papers
CEPR Discussion Paper DP15039 (paper version July 2020)
Abstract:
We examine the cross-country relationships between measures of forecast uncertainty, forecast dispersion across individual forecasters and the variabilities of short-term interest rates and long-term yields. The main findings are: (i) Forecast uncertainty and forecast dispersion are positively and significantly related across countries for both short-term interest rates and long-term yields. (ii) A positive, albeit weaker, relation is found between forecast uncertainty and interest rate variability. (iii) Forecast dispersion of short-term interest rates and rates' variability are also positively associated. The evidence is followed by a Bayesian learning model that discusses conditions under which the results above are implied by theory.
WWZ Working Paper 2018-05 (paper version January 2018)
SNB Working Paper 2017-17 (paper version November 2017)
Abstract:
We demonstrate how precision of public and private information in an economy can be measured. We develop and apply a procedure to test the welfare implications of a beauty and non-beauty contest based on survey forecasts of interest rates and yields in a large country sample over an extended period of time. In most countries, interest rate forecasts are unbiased and consistent with both models, but are rarely supported by yield forecasts. In half of the countries, a higher precision of public information regarding interest rates increases welfare. During forward guidance, public information is less precise than private information.
Media coverage of this paper:
CEPR Discussion Paper DP12489 (paper version December 2017)
SNB Working Paper 2018-10 (paper version May 2018)
Prepared for the
4th Thomas Guggenheim Conference on "Expectations: Theory and Applications in Historical Perspective",
at Ben-Gurion University of the Negev, December 2017.
Abstract:
This paper develops a model of honest rational professional forecasters with different abilities and submits it to empirical verification using data on 3- and 12-months ahead forecasts of short-term interest rates and of long-term bond yields for up to 33 countries collected by Consensus Economics. The main finding is that in many countries, less-precise forecasters weigh public information more heavily than more-precise forecasters who weigh their own private information relatively more heavily. One implication of this result is that less-precise forecasters herd after more-precise forecasters even in the absence of strategic considerations. We also document differences between the average forecasting errors of more- and less-able forecasters as well as substantial correlations between the forecast errors of different forecasters.
SNB Working Paper 2018-14 (paper version November 2018)
Abstract:
In this paper, I derive and apply three univariate methods and one bivariate method to estimate permanent and transitory components of the American output growth path during the 1790 to 2017 period. The results show that statistical tests give little support to the hypothesis of significant permanent growth rate changes (univariate methods). The "special century" (1870-1970, as defined by Gordon (2016)) exhibited more volatile permanent shifts in the output level compared to recent decades (bivariate method).
This is my Master Thesis. It received the Junior Research Award in Economics 2014 sponsored by Private Bankers of Basel, 3rd Prize (Nachwuchsförderpreis “Wirtschaft” der Basler Privatbanken 2014).
Columns
Central bank communication has become an important policy tool over the past 20 years. This column uses survey data to show that business executives tend to associate a greater volume of speeches from the central bank with the central bank having less of an impact on the economy. Importantly, this effect stems not from speeches given by governors, but by other board members.
Almost 60 years ago, John Muth introduced the idea that adaptive expectations are rational if they efficiently use all available information. However, individuals are never fully certain, even ex post, about the permanence of economic developments. Using Israeli data, this explores the implications of this residual uncertainty for market efficiency. The findings point to issues with conventional market efficiency tests where ‘permanent-transitory confusion’ is in effect.
Most central banks communicate more openly with the markets than they did 20 years ago. The column argues that more speeches, more forward guidance, and more transparency has often worsened the accuracy of private-sector forecasts. Too much communication may be the problem, creating a cacophony of policy voices.
Data
This data set contains metadata for speeches from the BIS
"Central Bankers' Speeches" database. Metadata include the exact date of the speech and the central bank that spoke. The data set is updated to July 2020.
Cirrculum Vitae
Education
April 2018 PhD in Economics. University of Basel, Switzerland.
Dissertation title: Four Essays on Expectation Formation in Monetary Economics and Macroeconomics.
Main Supervisor: Professor Heinz Zimmermann (University of Basel).
February 2017 Visiting PhD Candidate. Interdisciplinary Center Herzliya, Israel.
January 2016
Swiss Program for Beginning Doctoral Students in Economics (full program).
Study Center Gerzensee, Switzerland.
October 2013 MSc in International and Monetary Economics. University of Bern and University of Basel, Switzerland.
October 2011 BSc in Economics. University of Bern, Switzerland.
Academic Honors and Grants
October 2016 Werenfels-Fonds, Basel.
April 2014
Junior Research Award in Economics 2014 sponsored by Private Bankers of Basel, 3rd Prize (Nachwuchsfoerderpreis “Wirtschaft” der Basler Privatbanken 2014).
American Political Science Review (APSR);
International Journal of Central Banking (IJCB);
Journal of Money, Credit and Banking (JMCB);
SNB internal papers.
Invited Conferences and Workshops
2019
Workshop ROME (Research on Money in the Economy), Frankfurt (17/05).
2018
Bank of Canada Conference on Central Bank Communication, Ottawa (14/09).
2017
4th Thomas Guggenheim Conference on "Expectations: Theory and Applications in Historical Perspective", at the Ben-Gurion University of the Negev, Israel (18/12).
Conferences and Workshops
2018
25th Annual Conference of the Multinational Finance Society in Budapest (Presenter and Discussant, 25/06);
2018 Annual Meeting of the Swiss Society of Economics and Statistics SSES at the University of St. Gallen (Presenter, poster and parallel session, 14-15/06);
Swiss Finance Institute Research Days 2018 at the Study Center Gerzensee (Presenter, 4/06);
SNB Brown Bag Workshop (Presenter, 8/05);
EABCN Conference: "Measuring the Effects of Unconventional Monetary Policy in the Data: What Have We Learned?" at the Universitat Pompeu Fabra (Presenter, 27/04);
SNB-BIS Workshop at the BIS (Presenter, 22/03);
SNB Brown Bag Workshop (Presenter, 20/03);
T2M Conference 2018 at the Université Paris Dauphine (Presenter and Discussant, 15/03).
2017
IV Gerzensee Alumni Conference at the Study Center Gerzensee (Presenter, 5/12);
BuBa-OeNB-SNB Workshop at the SNB (Presenter, 27/09);
Swiss Finance Institute Research Days 2017 at the Study Center Gerzensee (Presenter, 4/06);
Brown Bag Seminar at the Study Center Gerzensee (Presenter, 29/05);
Economics Lunch at the University of Basel (Presenter, 17/05);
SNB Brown Bag Workshop (Presenter, 25/04);
Kolloquium at the University of Basel (Presenter, 6/04);
2016
SNB Brown Bag Workshop (Presenter, 20/12);
BuBa-OeNB-SNB Workshop at the BuBa (Presenter, 13/10).
Professor of Finance
University of Basel
Faculty of Business and Economics
Peter Merian-Weg 6
CH-4002 Basel
Professor of Economics
University of Bern
Department of Economics
Schanzeneckstrasse 1
CH-3001 Bern
Professor of Economics
Interdisciplinary Center Herzlyia and Tel-Aviv University (emeritus)
Israel
Head of Research Coordination and Economic Education
Swiss National Bank
Börsenstrasse 15
CH-8022 Zurich
Contact
Journal of International Money and Finance (July 2021 issue, Vol. 115)
Working paper version:
SNB Working Paper 2020-17 (paper version July 2020)
Abstract: We analyze the economic impact of central banks sensed by business executives in a sample of 61 countries from 1998 to 2016. Based on a survey conducted by the Institute for Management Development (IMD), we find compelling evidence that intensive central bank communication, as measured by the quantity of speeches, worsens the perceived impact. During the global financial crisis (GFC), this effect became even stronger. In contrast, economic growth and a positive output gap improve the opinion executives have of their central bank?s impact on the economy. Moreover, although less robustly, higher unemployment, and higher short-term interest rates worsen executives? opinion, while market uncertainty improves it. The level of inflation and an inflation targeting regime, central bank independence and transparency, financial crises, the zero lower bound constraint, forward guidance, the performance of the stock market, and the volatility of the exchange rate seem to be unimportant in this regard. A more detailed analysis shows that the effect of speeches depends on the identity of the speaker, the exchange-rate regime or an explicit employment mandate.
Media coverage of this paper:
International Journal of Central Banking (March 2020 issue, Vol. 16, No. 2, pp. 153 — 201)
Working paper versions:
WWZ Working Paper 2018-06 (paper version January 2018)
SNB Working Paper 2017-12 (paper version October 2017)
Abstract: In a large sample of countries across different geographic regions and over a long period of time, we find limited country- and variable-specific effects of central bank transparency on forecast accuracy and their dispersion among a large set of professional forecasts of financial and macroeconomic variables. More communication even increases forecast errors and dispersion.
Media coverage of this paper:
- "Let's Not Return to the Bad Old Days of Central Bank Secrecy" (Bloomberg View, 14-Mar-2018).
- "A Cacophony of Central Bankers" (Wall Street Journal, 05-Mar-2018).
- "More frequent central bank communication worsens financial and macroeconomic forecasts" (Vox, CEPR's Policy Portal, 04-Mar-2018).
- "When central banks inform too much" ("Wenn Notenbanken zu viel informieren"; Zentralschweiz am Sonntag, 05-Nov-2017).
- "On forward guidance" (e-axes 360° Econ View, 12-Oct-2017).
- "Central Bankers Fare Better When They Are Tight Lipped" (Bloomberg, 11-Oct-2017).
- "More communication may hamper monetary policy, paper says" (Central Banking, 09-Oct-2017).
The data set for our communication measure is available upon request, see section Data.
In Expectations: Theory and Applications from Historical Perspectives
(March 2020, Springer Studies in the History of Economic Thought, Arie Arnon, Warren Young, Karine van der Beek (eds), Springer, pp. 215 — 238)
Working paper version
CEPR Discussion Paper DP13187 (paper version September 2018)
Abstract: Even when all past and present information is known individuals usually remain uncertain about the permanence of observed variables. After reviewing the history and role of adaptive expectations and its statistical foundations in modeling this permanent-transitory confusion the paper investigates the consequences of this confusion for tests of market efficiency in the treasury bill and foreign exchange markets. A central result is that the detection of serial correlation in efficiency tests based on finite samples does not necessarily imply that markets are inefficient. The second part of the paper utilizes data on Israeli inflation expectations from the capital market to estimate the implicit speed of learning about changes in inflation and to examine the performance of adaptive expectations in tracking the evolution of those expectations during the 1985 Israeli shock stabilization as well as during the stable inflation targeting period.
Media coverage of this paper:
CEPR Discussion Paper DP15039 (paper version July 2020)
Abstract:
We examine the cross-country relationships between measures of forecast uncertainty, forecast dispersion across individual forecasters and the variabilities of short-term interest rates and long-term yields. The main findings are: (i) Forecast uncertainty and forecast dispersion are positively and significantly related across countries for both short-term interest rates and long-term yields. (ii) A positive, albeit weaker, relation is found between forecast uncertainty and interest rate variability. (iii) Forecast dispersion of short-term interest rates and rates' variability are also positively associated. The evidence is followed by a Bayesian learning model that discusses conditions under which the results above are implied by theory.
WWZ Working Paper 2018-05 (paper version January 2018)
SNB Working Paper 2017-17 (paper version November 2017)
Abstract:
We demonstrate how precision of public and private information in an economy can be measured. We develop and apply a procedure to test the welfare implications of a beauty and non-beauty contest based on survey forecasts of interest rates and yields in a large country sample over an extended period of time. In most countries, interest rate forecasts are unbiased and consistent with both models, but are rarely supported by yield forecasts. In half of the countries, a higher precision of public information regarding interest rates increases welfare. During forward guidance, public information is less precise than private information.
Media coverage of this paper:
CEPR Discussion Paper DP12489 (paper version December 2017)
SNB Working Paper 2018-10 (paper version May 2018)
Prepared for the
4th Thomas Guggenheim Conference on "Expectations: Theory and Applications in Historical Perspective",
at Ben-Gurion University of the Negev, December 2017.
Abstract:
This paper develops a model of honest rational professional forecasters with different abilities and submits it to empirical verification using data on 3- and 12-months ahead forecasts of short-term interest rates and of long-term bond yields for up to 33 countries collected by Consensus Economics. The main finding is that in many countries, less-precise forecasters weigh public information more heavily than more-precise forecasters who weigh their own private information relatively more heavily. One implication of this result is that less-precise forecasters herd after more-precise forecasters even in the absence of strategic considerations. We also document differences between the average forecasting errors of more- and less-able forecasters as well as substantial correlations between the forecast errors of different forecasters.
SNB Working Paper 2018-14 (paper version November 2018)
Abstract:
In this paper, I derive and apply three univariate methods and one bivariate method to estimate permanent and transitory components of the American output growth path during the 1790 to 2017 period. The results show that statistical tests give little support to the hypothesis of significant permanent growth rate changes (univariate methods). The "special century" (1870-1970, as defined by Gordon (2016)) exhibited more volatile permanent shifts in the output level compared to recent decades (bivariate method).
This is my Master Thesis. It received the Junior Research Award in Economics 2014 sponsored by Private Bankers of Basel, 3rd Prize (Nachwuchsförderpreis “Wirtschaft” der Basler Privatbanken 2014).
Columns
Central bank communication has become an important policy tool over the past 20 years. This column uses survey data to show that business executives tend to associate a greater volume of speeches from the central bank with the central bank having less of an impact on the economy. Importantly, this effect stems not from speeches given by governors, but by other board members.
Almost 60 years ago, John Muth introduced the idea that adaptive expectations are rational if they efficiently use all available information. However, individuals are never fully certain, even ex post, about the permanence of economic developments. Using Israeli data, this explores the implications of this residual uncertainty for market efficiency. The findings point to issues with conventional market efficiency tests where ‘permanent-transitory confusion’ is in effect.
Most central banks communicate more openly with the markets than they did 20 years ago. The column argues that more speeches, more forward guidance, and more transparency has often worsened the accuracy of private-sector forecasts. Too much communication may be the problem, creating a cacophony of policy voices.
Data
This data set contains metadata for speeches from the BIS
"Central Bankers' Speeches" database. Metadata include the exact date of the speech and the central bank that spoke. The data set is updated to July 2020.
Cirrculum Vitae
Education
April 2018 PhD in Economics. University of Basel, Switzerland.
Dissertation title: Four Essays on Expectation Formation in Monetary Economics and Macroeconomics.
Main Supervisor: Professor Heinz Zimmermann (University of Basel).
February 2017 Visiting PhD Candidate. Interdisciplinary Center Herzliya, Israel.
January 2016
Swiss Program for Beginning Doctoral Students in Economics (full program).
Study Center Gerzensee, Switzerland.
October 2013 MSc in International and Monetary Economics. University of Bern and University of Basel, Switzerland.
October 2011 BSc in Economics. University of Bern, Switzerland.
Academic Honors and Grants
October 2016 Werenfels-Fonds, Basel.
April 2014
Junior Research Award in Economics 2014 sponsored by Private Bankers of Basel, 3rd Prize (Nachwuchsfoerderpreis “Wirtschaft” der Basler Privatbanken 2014).
American Political Science Review (APSR);
International Journal of Central Banking (IJCB);
Journal of Money, Credit and Banking (JMCB);
SNB internal papers.
Invited Conferences and Workshops
2019
Workshop ROME (Research on Money in the Economy), Frankfurt (17/05).
2018
Bank of Canada Conference on Central Bank Communication, Ottawa (14/09).
2017
4th Thomas Guggenheim Conference on "Expectations: Theory and Applications in Historical Perspective", at the Ben-Gurion University of the Negev, Israel (18/12).
Conferences and Workshops
2018
25th Annual Conference of the Multinational Finance Society in Budapest (Presenter and Discussant, 25/06);
2018 Annual Meeting of the Swiss Society of Economics and Statistics SSES at the University of St. Gallen (Presenter, poster and parallel session, 14-15/06);
Swiss Finance Institute Research Days 2018 at the Study Center Gerzensee (Presenter, 4/06);
SNB Brown Bag Workshop (Presenter, 8/05);
EABCN Conference: "Measuring the Effects of Unconventional Monetary Policy in the Data: What Have We Learned?" at the Universitat Pompeu Fabra (Presenter, 27/04);
SNB-BIS Workshop at the BIS (Presenter, 22/03);
SNB Brown Bag Workshop (Presenter, 20/03);
T2M Conference 2018 at the Université Paris Dauphine (Presenter and Discussant, 15/03).
2017
IV Gerzensee Alumni Conference at the Study Center Gerzensee (Presenter, 5/12);
BuBa-OeNB-SNB Workshop at the SNB (Presenter, 27/09);
Swiss Finance Institute Research Days 2017 at the Study Center Gerzensee (Presenter, 4/06);
Brown Bag Seminar at the Study Center Gerzensee (Presenter, 29/05);
Economics Lunch at the University of Basel (Presenter, 17/05);
SNB Brown Bag Workshop (Presenter, 25/04);
Kolloquium at the University of Basel (Presenter, 6/04);
2016
SNB Brown Bag Workshop (Presenter, 20/12);
BuBa-OeNB-SNB Workshop at the BuBa (Presenter, 13/10).
Professor of Finance
University of Basel
Faculty of Business and Economics
Peter Merian-Weg 6
CH-4002 Basel
Professor of Economics
University of Bern
Department of Economics
Schanzeneckstrasse 1
CH-3001 Bern
Professor of Economics
Interdisciplinary Center Herzlyia and Tel-Aviv University (emeritus)
Israel
Head of Research Coordination and Economic Education
Swiss National Bank
Börsenstrasse 15
CH-8022 Zurich
Contact
CEPR Discussion Paper DP15039 (paper version July 2020)
Abstract: We examine the cross-country relationships between measures of forecast uncertainty, forecast dispersion across individual forecasters and the variabilities of short-term interest rates and long-term yields. The main findings are: (i) Forecast uncertainty and forecast dispersion are positively and significantly related across countries for both short-term interest rates and long-term yields. (ii) A positive, albeit weaker, relation is found between forecast uncertainty and interest rate variability. (iii) Forecast dispersion of short-term interest rates and rates' variability are also positively associated. The evidence is followed by a Bayesian learning model that discusses conditions under which the results above are implied by theory.
WWZ Working Paper 2018-05 (paper version January 2018)
SNB Working Paper 2017-17 (paper version November 2017)
Abstract: We demonstrate how precision of public and private information in an economy can be measured. We develop and apply a procedure to test the welfare implications of a beauty and non-beauty contest based on survey forecasts of interest rates and yields in a large country sample over an extended period of time. In most countries, interest rate forecasts are unbiased and consistent with both models, but are rarely supported by yield forecasts. In half of the countries, a higher precision of public information regarding interest rates increases welfare. During forward guidance, public information is less precise than private information.
Media coverage of this paper:
CEPR Discussion Paper DP12489 (paper version December 2017)
SNB Working Paper 2018-10 (paper version May 2018)
Prepared for the 4th Thomas Guggenheim Conference on "Expectations: Theory and Applications in Historical Perspective", at Ben-Gurion University of the Negev, December 2017.
Abstract: This paper develops a model of honest rational professional forecasters with different abilities and submits it to empirical verification using data on 3- and 12-months ahead forecasts of short-term interest rates and of long-term bond yields for up to 33 countries collected by Consensus Economics. The main finding is that in many countries, less-precise forecasters weigh public information more heavily than more-precise forecasters who weigh their own private information relatively more heavily. One implication of this result is that less-precise forecasters herd after more-precise forecasters even in the absence of strategic considerations. We also document differences between the average forecasting errors of more- and less-able forecasters as well as substantial correlations between the forecast errors of different forecasters.
SNB Working Paper 2018-14 (paper version November 2018)
Abstract: In this paper, I derive and apply three univariate methods and one bivariate method to estimate permanent and transitory components of the American output growth path during the 1790 to 2017 period. The results show that statistical tests give little support to the hypothesis of significant permanent growth rate changes (univariate methods). The "special century" (1870-1970, as defined by Gordon (2016)) exhibited more volatile permanent shifts in the output level compared to recent decades (bivariate method).
This is my Master Thesis. It received the Junior Research Award in Economics 2014 sponsored by Private Bankers of Basel, 3rd Prize (Nachwuchsförderpreis “Wirtschaft” der Basler Privatbanken 2014).
Central bank communication has become an important policy tool over the past 20 years. This column uses survey data to show that business executives tend to associate a greater volume of speeches from the central bank with the central bank having less of an impact on the economy. Importantly, this effect stems not from speeches given by governors, but by other board members.
Almost 60 years ago, John Muth introduced the idea that adaptive expectations are rational if they efficiently use all available information. However, individuals are never fully certain, even ex post, about the permanence of economic developments. Using Israeli data, this explores the implications of this residual uncertainty for market efficiency. The findings point to issues with conventional market efficiency tests where ‘permanent-transitory confusion’ is in effect.
Most central banks communicate more openly with the markets than they did 20 years ago. The column argues that more speeches, more forward guidance, and more transparency has often worsened the accuracy of private-sector forecasts. Too much communication may be the problem, creating a cacophony of policy voices.
This data set contains metadata for speeches from the BIS "Central Bankers' Speeches" database. Metadata include the exact date of the speech and the central bank that spoke. The data set is updated to July 2020.
Education
Academic Honors and Grants
American Political Science Review (APSR);
International Journal of Central Banking (IJCB);
Journal of Money, Credit and Banking (JMCB);
SNB internal papers.