Communicational Bias in Monetary Policy: Can Words Forecast Deeds? [with Comment]

The implementation of monetary policy based on setting the overnight interest rate is usually complemented with a strong set of communicational tools that, first, inform markets about the reasons underlying current decisions and, second, indicate the most likely future path of the monetary policy rate (MPR), given the appraisal of the current economic environment. Inflation-targeting countries have been leaders in incorporating this set of tools, which usually comprises periodical inflation reports, financial stability reports, formal speeches, and minutes released immediately after monetary policy meetings. In the case of Chile, the second-oldest inflation-targeting country, these minutes usually include a paragraph signaling the most likely future direction of the MPR. This signal is called the communicational bias, or c-bias. In this article, the authors focus on evaluating the informal null hypothesis that the c-bias is a sufficient indicator of the Chile's Central Bank Board's decisions regarding the future direction of the MPR.