Discussion paper

DP17728 Central Bank Communication of Uncertainty

In this paper, we examine how the monetary policy setting committees
of the Federal Reserve, the Bank of England and the European Central
Bank communicate their reaction to incoming data in their policy deliberation process by expressing confidence and surprise or uncertainty with respect to existing narratives. We use text analysis techniques to calculate forward and backward looking measures of relative surprise from the published Minutes of these decision-making bodies. We find many common patterns in this communication. Interestingly, policymakers tend to express more surprise and uncertainty with regard to developments in the real economy, whereas they are more likely to confirm their expectations with regard to inflation and monetary policy. When considering the monetary policy stance, we observe a tendency for policymakers to highlight surprise and uncertainty several meetings in advance of changes, particularly when easing monetary policy. Importantly, we document that a higher proportion of expressions of surprise and uncertainty increases the likelihood of an easier policy stance. By contrast, a higher proportion of expressions of confirmation tends to increase the likelihood of a tighter policy stance.


Hanifi, R, K Istrefi and A Penalver (eds) (2022), “DP17728 Central Bank Communication of Uncertainty”, CEPR Press Discussion Paper No. 17728. https://cepr.org/publications/dp17728