Line of Inquiry: Michael Weber on how central banks should communicate

Jan 03, 2020

Sections Public Policy

Collections Monetary Policy

Forward guidance, or statements meant to convey central banks’ expectations about future trends and decisions, has become a staple of monetary policy. Officials at the Fed, European Central Bank, and other banks hope that by letting the public know their plans, they can encourage consumers to spend or save more, thereby stimulating or cooling off the economy as appropriate. But it only works if the public gets the message and acts upon it—and research suggests many people simply don’t. Chicago Booth’s Michael Weber suggests explanations for what might be preventing forward guidance from having its intended effect, and what monetary policymakers can do to communicate more effectively.