Can Central Bank Communication Guide Individuals' Expectations About the Macroeconomy? Evidence From a Randomized Information Experiment in China

Abstract

Communication with the market to guide public expectations has become a pivotal monetary policy instrument for central banks worldwide. Therefore, assessing the efficacy of communication in influencing personal expectations is essential for central banks. To examine the effectiveness of communication by the People's Bank of China (PBC), we conduct a randomized experiment in which subjects receive excerpts from China's Monetary Policy Implementation Report (MPIR) for the third quarter of 2022 as information interventions. This study exploits the exogenous variation generated by the treatment to explore how central bank communication influences individuals' expectations regarding the macroeconomy. The key findings are as follows: First, positive communication from the central bank can steer individuals' expectations about the likelihood of a recession in line with the central bank's objectives, and this effect is more pronounced among those who read financial news less frequently. Second, clear and specific retrospective communication is more effective in guiding expectations about the macroeconomy than vague and complex forward-looking communication. Third, PBC communication affects individuals' consumption plans, supporting the central bank's economic growth objectives.