Strategic Central Bank Communication: Discourse and Game-Theoretic Analyses of the Bank of Japan’s Monthly Report
We conduct a discourse analysis of the Bank of Japan’s Monthly Report and examine its characteristics in relation to business cycles. We find that the difference between the number of positive and negative expressions in the reports leads the leading index of the economy by approximately three months, which suggests that the central bank’s reports have some superior information about the state of the economy. Moreover, ambiguous expressions tend to appear more frequently with negative expressions. Using a simple persuasion game, we argue that the use of ambiguity in communication by the central bank can be seen as strategic information revelation when the central bank has an incentive to bias the reports (and hence beliefs in the market) upwards.
Central banks not only implement monetary policy but also provide a significant amount of information for the market (Blinder , Eijffinger and Geraats ). Indeed, most publications of central banks are not solely about monetary policy but provide data and analyses on the state of the economy. It has been widely recognized that central banks use various communication channels to influence market expectations so as to enhance the effectiveness of their monetary policy. Meanwhile, it is not readily obvious whether central banks reveal all information they have exactly as it stands. In particular, although central banks cannot make untruthful statements owing to accountability and fiduciary requirements, they may communicate strategically and can be selective about the types of information they disclose. This concern takes on special importance when central banks’ objectives (e.g., keeping inflation/deflation under control and achieving maximum employment) may not be aligned completely with those of market participants, and possibly, governments.