Discussion paper

DP17728 Central Bank Communication of Uncertainty

In this paper we examine how central bankers communicate confidence and uncertainty in their narrative about the state of the economy when deciding policy, and how this communication relates to their policy decisions. We use text analysis techniques to construct forward and backward looking sentiment measures of policymakers' confirmation and surprise from the published Minutes of the Federal Reserve, the Bank of England and the European Central Bank. We show that the communication of confirmation and surprise has statistical power to explain monetary policy decisions, and that both types of communication convey signals. Our results suggest that policymakers signal policy easing when communicating higher uncertainty and surprise, and a lower likelihood of easing when confirming trends. The latter is explained by the intensity of the inflation topic in confirmation quotes, whereby a higher confirmation with regard to inflation indicates a higher confidence of policymakers to tighten policy.


Fadda, P, R Hanifi, K Istrefi and A Penalver (2022), ‘DP17728 Central Bank Communication of Uncertainty‘, CEPR Discussion Paper No. 17728. CEPR Press, Paris & London. https://cepr.org/publications/dp17728