Central banks’ communication strategies are critical in shaping public inflation expectations, especially as inflation remains a pressing global concern. This column provides evidence from a survey experiment exploring how different communication mediums – text, photo, audio, and video – impact households’ inflation expectations. The findings suggest that dynamic audiovisual methods, like audio and video, are significantly more effective than static mediums, such as text or photo, particularly for less informed audiences. This has important implications for central bank communication strategies in today’s uncertain economic climate.
In recent discussions about monetary policy, central banks’ communication strategies have emerged as a critical focal point. The ability of central banks to effectively convey their inflation targets can significantly influence public expectations and real economic outcomes (Blinder et al. 2008). As inflation and a possible de-anchoring of inflation expectations remain pressing concerns worldwide, particularly in the wake of recent economic fluctuations, understanding how communication affects inflation expectations has never been more relevant (Jansen et al. 2022). Recent research has shown that nonverbal elements of communication can play important role in addition to the message content (D’Acunto et al. 2021, Gorodnichenko et al. 2023, Curti and Kazinnik 2023, Alexopoulos et al. 2024).
Survey experiment
To delve deeper into this critical issue, we conducted a randomised survey experiment examining how different mediums of communication affect households’ inflation expectations (Ash et al. 2024). Our aim was to assess whether text, photo, audio, or video formats yielded varying levels of effectiveness in conveying the key inflation target message of ECB President Christine Lagarde. Specifically, the survey participants were randomly assigned to one of several treatment groups. The first group received only the text transcript of Lagarde’s statement on the inflation target, in which she reaffirms the ECB’s commitment to a 2% inflation target during the Governing Council press conference. Four additional groups received the same text along with an audiovisual element: (a) a photo of Lagarde, (b) an audio recording of the statement, (c) both the photo and audio recording, or (d) a video recording of the statement (see Figure 1). A placebo group was presented with an unrelated text statement on a different topic. Participants were asked to report their short- and medium-term inflation expectations both before and after the treatment.
Figure 1 Video treatment screenshot
Note: Video screenshot of Christiane Lagarde at the press conference after the ECB Governing Council meeting on October 28th, 2021. The video sequence can be watched.
Key findings
Our findings reveal that the communication medium significantly influences how effectively inflation messages are conveyed. Firstly, in accordance with the findings of previous research (Coibion et al. 2022), it can be observed that exposure to any information regarding the inflation target results in households updating their expectations in line with the target. Secondly, the medium through which the communication is conveyed is of significant importance. Participants who received audiovisual treatments, such as a photo, audio, audio with photo, or video, exhibited a greater tendency to adjust their expectations towards the target than those who only read the text transcript. Furthermore, the impact is markedly more pronounced for more ‘dynamic’ media (audio or video) in comparison to more ‘static’ media (text or photo).
The differences are economically significant. Prior to the implementation of the treatment, the respondents exhibited an average expectation of 5.6% for annual euro area inflation in 2022. Following the presentation of Lagarde’s inflation target statement, participants exhibited a notable shift in their short-term inflation expectations, moving approximately 0.4 percentage points closer to the communicated inflation target, compared to those who received an unrelated placebo statement. It is also noteworthy that audio or video treatments lead to a 0.4 percentage point adjustment towards the target beyond the text treatment. Similar effects are observed for medium-term inflation expectations.
The results are consistent across various alternative specifications and robustness checks, including controlling for observable characteristics, using different estimation methods (such as ordinary least squares and Huber regressions), varying transformations of the inflation expectation variable (levels, logs, or binary), and applying different sample restrictions.
Bayesian updating and the role of prior informedness
We further explore the role audiovisual communication for inflation expectations within the context of a Bayesian updating framework. A regression model that controls for observable characteristics is employed to directly estimate the treatment effects on the signal gain. In accordance with our previous findings, we observe that the use of dynamic media significantly increases the weight placed on the signal. Furthermore, respondents who were exposed to audio or video treatments demonstrated increased confidence in their inflation predictions following the treatment. This suggests that the signal was perceived as more precise.
In order to gain further insight into the Bayesian updating process, we investigate how the observed effects vary in accordance with the frequency with which respondents consume economic news. The consumption of news can be considered a proxy for the level of information possessed by respondents regarding economic issues and, consequently, their prior knowledge of monetary policy. The results of our analysis indicate that the impact of audiovisual treatments is statistically larger for respondents with less information to draw upon than for those with more. This discrepancy can be attributed to the fact that more informed respondents possess more robust prior beliefs about monetary policy, rendering them less susceptible to the influence of a more precise signal and, consequently, less responsive to audiovisual mediums.
Research contribution and policy relevance
As the world continues to navigate an era of economic uncertainty, it is imperative for central banks to optimise their communication approaches to effectively anchor inflation expectations. A growing body of literature on this topic reinforces the notion that the clarity and engagement of monetary policy communication can influence economic behaviour, ultimately shaping the trajectory of inflation itself (see de Haan and Sturm 2019 and Blinder et al. 2023 for overviews of the research on central bank communication; see D’Acunto et al. 2024 for a summary of key insights from the recent literature on household inflation expectations for the conduct of monetary policy). While previous literature primarily examined how varying messages or messengers influence public perceptions, our study provides a fresh perspective by focusing on the communication medium itself. In an era where misinformation and economic uncertainty abound, effective communication is paramount for central banks aiming to maintain credibility and public trust.
Our results underline the importance of adapting communication strategies to the audience’s needs. As central banks strive to enhance their engagement with the public, recognizing the efficacy of different mediums can lead to more effective communication strategies (related to this, see Peia et al. 2022 for an analysis of central banks’ Twitter activity). For example, some central banks could consider utilizing more audio and video content in its outreach efforts, particularly when addressing diverse audiences with varying levels of economic knowledge.
Conclusion
Our research underscores the significant impact of communication mediums on households’ inflation expectations. By employing a randomised experimental design, we provide robust evidence that audiovisual communication is more effective than text in conveying the ECB’s inflation target. This finding holds particular relevance for less economically literate audiences, suggesting that central banks should consider the medium of communication as a critical component of their engagement strategy.
Looking ahead, further research could explore the effects of emotional content in audiovisual communications and their implications for policy reception. By leveraging emerging technologies, policymakers can tailor their messages to engage the public effectively, fostering a deeper understanding of monetary policy and its implications.
Source : VOXeu
