Communication and Monetary Policy

Recent trends toward greater central bank independence and the adoption of formal inflation targeting by several countries have served to emphasize the importance of communication policy. In this paper, we explore some of the economic effects of public information that arise whenever public information serves the dual role of conveying fundamental information as well as serving as a focal point for better coordination. More precise public information is a double‐edged tool. While it is very effective in influencing actions through coordination, sometimes it can be too effective, and coordinate actions away from fundamentals.