Communication in Unconventional Monetary Policy

CEU eTD Collection

Quantitative Yakking: Communication in Quantitative Yakking: Communication In partialIn fulfillment ofthe requirements for the degree Mastersof of Arts Unconventional MonetaryPolicy Submitted Centralto European University Supervisor: Department ofEconomics Budapest, Hungary Professor Daniel Bunn 2012 By

Alessia CampolmiAlessia

CEU eTD Collection public trust. regain to order in connections local and media social of use make would that strategy Fina credibility. public its of some back win could Fed the measures, unconventional its for frame time a communicating clearly by that Ishow Fed. the for support further discouraging and loss unconventional Fed’s the and response to exposedthebank itself crisis the that shows find that also I evidence fallen. theoretical has Fed the of opinion public general the that and years recent in Fed the concerning 2007. of end the at communication 1996 from communications Congressiona and policyissues accompanied been has This crisis. financial the of beginning the since significantly changed has communication (Fed) Reserve Federal

l, pooe ht h Fd mlmn a oe fetv communication effective more a implement Fed the that propose I lly, , I show that show I , - 2011, I show that there is a structural break in the volume of of volume the in break structural a is there that show I 2011,

a credibilitythisexploiting hasresponded by Congress loss. l concern with monetary policy. Using word counts of Fedof counts Usingword policy.monetary concern with l

public interest in monetary policy has grown remarkably remarkably grown has policy monetary in interest public Abstract y examining By ii

increased public interest in monetary monetary in interest public increased

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CEU eTD Collection arbitrary schedule work thank to like would I Finally, assistance. technical for quic was and data gather to Iused analysis application textual the created who University Kent of Weinstein Matthew Dr. of help the without possible been have not would thesis This thesis. this of drafting and argumentation the concerning comm useful her for Campolmi Alessia Professor thank to like would I ; she has been Acknowledgements

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my wife for putting up with up putting for wife my

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CEU eTD Collection Technical Appendix and PolicyConclusionsSummary 8. Conclusion Chapter 7. PolicyChapter Options 6. MathematicalChapter Model Analysis 5. Data Chapter 4. Met Chapter 3. DescriptionChapter FedCommunications of 2. Review Context Chapter and Literature 1. Introduction Chapter Acknowledgements Abstract A 4. Model Output A 3. Articles from Lexis A 2. Congressional Communication Data from Capitol Words A 1. Federal Re 5.4 Public Opinion Polls 5.3 Press Articles 5.2 Congressional Communication 5.1 Federal Reserve Communication

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CEU eTD Collection of M1+M2 longer haslasted 2001 than during much the growth high the that in unique is episode recent The 2001. during growth the than higher not been has M1+M2 in growth the that shows panel right lower The programs. sheet balance Fed’s the by lower driven been having zero, at now are yields real that reveals s zero effectively been has and lows historic at is rate Funds Federal the that shows panel right upper The “QE2”. and “QE1” dubbed programs easing quantitative Fed’s the with coincide 20 in sheet balance Fed’s the in growth extreme the shows panel left upper The policy. monetary unconventional to conventionalFoersterand 2011). policy(see Rudebusch 2010 re to pursued be should that strategy exit of sort the and 2009), Diyatat and (Borio sheets long potential the 2009), poli unconventional monetary of studies academic recent the of Many perspectives. many from studied multi near with long generically been has crisis the since policy Fed’s The 2011). Swanson 2011, Christiano 2011, Williams 2012, (Farmer discretion transparency, independence, credibility, the including dimensions multiple covered have in Authors and media circles. the academic in both times of number inestimable an critiqued and questioned been ince the middle of 2008. The Real 10 Real The 2008. of middle the ince - Since the financial crisis began in 2007, in began crisis financial the Since For the purpose of contextualization, Figure 1 displays four indicators of of indicators four displays 1 Figure contextualization, of purpose the For iesoa udr normal under dimensional cy focus on the uniqueness of monetary policy at the zero lower bound (Reis (Reis bound lower zero the at policy monetary of uniqueness the on focus cy - ze ro interest rates (Cúrdia and Woodford 2009). Just as monetary policy is is policy monetary as Just 2009). Woodford and (Cúrdia rates interest ro 08 and its continuous growth even through 2010. These periods of growth of periods These 2010. through even growth continuous its and 08 - term consequences of the expansion of the central bank balance balance bank central the of expansion the of consequences term labeled Chapter 1. Introduction Chapter1.

circumstances; as “unconventional” because it has been operating for so so for operating been has it because “unconventional” as ary stance and long and stance ary - year Treasury Yield displayed in the lower left panel panel left lower the in displayed Yield Treasury year 1

the Federal Reserve’s (the Fed) response has has response Fed) (the Reserve’s Federal the

unconventional monetary policy can be be can policy monetary unconventional - - 02 episode. run stability of U.S. monetary policy monetary U.S. of stability run

high recently, but but recently, high turn turn CEU eTD Collection policy. For a model that describes the conditions which lead a central bank to take take to bank central a lead which conditions the describes that model a For policy. measures. co clear of importance pre provide (2004) Sack and Reinhart Bernanke, and (2004) Reinhart and Bernanke by works Older 2007. in began crisis financial the since transparency to helping in important been have (2010) Bernanke and (2011) Yellen by work Recent policy. monetary unconventional of context the in transparency on in zooms literature this in subset important an 2003); Sack and Kohn and 2 al. et Blinder (see policy monetary on literature academic the in deep run policy monetary in communication and transparency of doctrines parallel The to want I years, The analysis in this paper is an extension of core analysis on unconventional monetary monetary unconventional on analysis core of extension an is paper this in analysis The measure unconventional exercising been has Fed the that established Having

highlight the fact that Fed communication has been unconventional as well as unconventional been has communication Fed that fact the highlight mmunication when a central bank implements unconventional unconventional implements bank central a when mmunication understand the Fed’s stance on communication and and communication on stance Fed’s the understand 2

008, Eijffinger and Geraats 2004, 2004, Geraats and Eijffinger 008, - crisis analyses that highlight the the highlight that analyses crisis s in recent recent in s .

CEU eTD Collection the that claim the support Fed the of opinion public’s the and expose I that policy monetary interes media in change recent The Act. Protection Consumer and Reform Street in increase an the find surrounding policy also monetary in interest I Congressional policy. monetary unconventional into entry its parallels that use could Fed the that argue will I communication inaneffort gain to credibility thepublic back has it lost. remedied. fully been yet not has loss t However, credibility credibility. policy its back won effectively Fed the economy, U.S. the stabilizing at success some achieving and strategy communication its changing By 2011). Congre U.S. the of members by made Fed the against attacks and policy unconventional Fed’s the on focus media’s the by magnified was feeling This economy. U.S. the in players many among forsolution managing monetary U.S. policy. democratic the as Fed the in has public general the that trust the is which credibility public of ha markets financial that trust the is which credibility policy of loss a is first The communicates. public the gene I Fed. the of opinion public’s the as well as policy monetary to attention media and Congressional to related is expe and communication of importance the on heavily concentrates low very are rates interest pre The unconventional ve that the Fed is committed to and is able to achieve its policy goals. The second is a loss loss a is second The goals. policy its achieve to able is and to committed is Fed the that ve ctations management (Bernanke 2004).and Reinhart My research focuses on how Fed communication has changed since the crisis, how this this how crisis, the since changed has communication Fed how on focuses research My The evidence I uncover shows that there has been a major shift in Fed communication Fed in shift major a been has there that shows uncover I evidence The the and crisis The ss which has led to the loss of public credibility (see Bunn 2011 and McConnel et al. al. et McConnel and 2011 Bunn (see credibility public of loss the to led has which ss - financial crisis literature that addresses the problems faced by central banks when when banks central by faced problems the addresses that literature crisis financial

in the future. At least two things have occurred which have shifted the way the Fed Fed the way the shifted have which occurred have things two least At future. the in

esrs e Grlr n Krd (01 o Mni ad enir (2011). Weinzierl and Mankiw or (2011) Karadi and Gertler see measures Fed’s dramatic response created a temporary loss of policy credibility credibility policy of loss temporary a created response dramatic Fed’s use my findings to argue to findings my use

how the Fed should communicate should Fed the how

passage of the Dodd the of passage

- Frank Wall Wall Frank he public public he t towards towards t

with with ral ral

CEU eTD Collection broad a with network communication a establish to efforts more for argues and Fed the by policy. unconv of period a after and during before body legislative a and bank central a between competition communication the demonstrates that model mathematical data. poll opinion as well as issues policy monetary communicatio Congressional on data with data this compares and communication Chapter Chapter p monetary with concern Congressional of history recent the as well as communication transparency. study or removed being from banks handcuffed being goals. whilestill toachieve able policy central keep and credibility of types both protect to help co clear commodity, a are scapegoats when situation crisis a in Especially credibility. public and policy their both protect must they that reminded be should world the po communication which isaunique theFed’s check independence. against is strategy communications connected locally more a that argue I this do to Fed the for options analyzing in Finally, credibility. pubic its improve again could Fed the policy unconventional protect to order in criticism Fed’scredibility public been has eroded.

necessary for Fed communication to effectively protect its credibility against Congressional credibility against its protecteffectively to communication Fed fornecessary licy and the broader doctrine of communication in monetary policy. Central banks around around banks Central policy. monetary in communication of doctrine broader the and licy Using a mathematical model, I show that the Fed should respond to Congressional Congressional to respond should Fed the that show I model, mathematical a Using This paper is arranged in the following way. following the in arranged is paper This Theseliterature findings are my the contribution to onunconventionalmonetary original within the academic literature on unconventional monetary policy and central bank bank central and policy monetary unconventional on literature academic the within Chapter

4 describes the methodology I will use in answering my tripartite research question. question. research tripartite my answering in use will I methodology the describes 4 5 includes the presentation and analysis of my original data set on Fed Fed on set data original my of analysis and presentation the includes 5 Chapter

7 evaluates policy options by appraising recent unique communication efforts communication unique recent appraising by options policy evaluates 7

3 provides a general background of Federal Reserve transparency and and transparency Reserve Federal of background general a provides 3 its public its credibility

and that by communicating a time frame for for frame time a communicating by that and Chapter Chapter

6 moves away from the data to a a to data the from away moves 6 2 establishes the context of this of context the establishes 2

entional monetary monetary entional mmunication can can mmunication about n olicy. olicy. CEU eTD Collection to planned actually Fed the what account into taking before is This credibility. its on attacks invited automatically response Fed’s the that clear becomes it crisis, financial the to response Ithe case am studying. with perfectly fits uncovers he that finding key One announcements. likely of credibility the se and words of power the is there First effects. separate two actually is strategy communication on competence this of impact the that shows He transparency. and credibility crisis madeof a credibility weakeningalmost inevitable. financial the to respond to Fed the for need actual the So credibility. institutional to challenge and a creates program stabilization stabilization a for rate need very the exchange clear: is lesson to general the disinflation, is application main Dornbush’s Though credibility situation. imperfect an creates This failure. of probability ante ex some has program the unusual circumstances. in policy monetary or policy monetary unconventional is theme third The policy. monetary in communication of that is second The credibility. bank central is theme first The question. mon on literature academic the in themes three are There literature. academic the in context solid a without not are they unique, been have crisis local reach. Though the communication efforts of the Federal Reserve since the start of the financial the of start the since Reserve Federal the of efforts communication the Though o b piig h aayi of analysis the pairing by So, Mo Dorn xrm maue ae n at ald o, u mr ceil i fine in credible more but deviationssmall ofthe inflationtarget from long its for, called fact in are measures extreme measures. policy extreme for need the announce to and observe to likely less relatively is bank] [central competent more “A scarini (2007) argues that a reputation for competence in monetary policy implies implies policy monetary in competence for reputation a that argues (2007) scarini busch (1991) develops a model in which a stabilization program is undertaken and and undertaken is program stabilization a which in model a develops (1991) busch Chapter Chapter 2. ChapterContextan 2.

8 concludes. 8

Dornbusch with Moscarini in the context of the Fed’s Fed’s the of context the in Moscarini with Dornbusch

Thus it is less credible in the rare instances when when instances rare the in credible less is it Thus 5

d Literature Review d Literature etary policy that are directly related to my my to related directly are that policy etary

- run mean” (Moscarini2007). - tuning the frequent frequent the tuning cond there is there cond

CEU eTD Collection establishment oftrust thatthe Fed maintain thenew will policy course as as long necessary. why understand to markets allows time where curve learning a is there First work. at dynamics two the highlights This inflation.” of rate the reducing at successful was policy Fed new the that verifying began markets after perhaps credi established Fed the that and year more one least at for present were fears “inflationary that discover They 1979. October in inflation fight to announcement the following immediately than rather time of period a over achieved was credibility that sho present they evidence empirical The credibility. policy achieve to able was Reserve Federal the how see to disinflation Volcker the of case classic the at look (1989) Barnhart and anindependent, again attackFed’s policy is credibility. this and onthe public less be to require it Fedor the of changeenvironment willworking the it that Congress asserts exposur means process political the to exposure argued, Prescott and Kydland As credibility. Fed to hit another bring would this independence), Fed reducing (thus reappointment of costs the reduce to Congress not also are costs the mone perfect but ensure to cheap, prohibitive completely so not is reappointment case, U.S. the In credibility. improve not will banker central delegated a then costs, no has reappointment if that shows ba the which through process the on depends banker central dynamic delegated of a of credibility problem the that argues the Jensen policy. monetary to setting in inconsistencies solution proposed (1977) Prescott’s and Kydland revisits impo are Congress the of actions the where is which process political weakness. part as do Another aspect of credibility is whether or not the central bank is independent of the the of independent is bank central the not or whether is credibility of aspect Another A lesson for lesson A

of its response. The need for policy action and the action itself created a credibility credibility a created itself action the and action policy for need The response. its of how policy credibility is created can be found in the 1980s. Hardouvelis 1980s. the in found be can created is credibility policy how e to dynamic inconsistencies and a lack of credibility. So when when So credibility. of lack a and inconsistencies dynamic to e 6 tary policy credibility. If efforts are made by made are efforts If credibility. policy tary

h plc wl wr. eod tee s an is there Second, work. will policy the nker is appointed. In fact, he he fact, In appointed. is nker bility slowly over time, time, over slowly bility tn. esn (1997) Jensen rtant.

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CEU eTD Collection ra turn, in which, upward, long of estimate its revise to public the lead may inflation in increase never a is banking that readers p the remind that highlight they addition, In rates. They interest of decisions.” path future the of policy expectations market influence to future used be can communication for outlook the and outlook, th policy, monetary of objectives the as matters such regarding public the to bank central the by information of provision “the as communication bank central of forms three these that communicationkey provide toinvest information conclude They maturities. longer with items for effects larger even has Greenspan Chairman by testimony Congressional 2003). Sack and intermediateand on short the communication on effects significant had “have statements Fed that find and variables market financial of impact the examine they categories, these Using Greenspan. spe major is category third the and Greenspan Chairman by testimony congressional includes second the statements, FOMC includes first The analysis. their for categories three into communications (FOMC) Committee Market Open Federal categorize comm Fed of effects the examine (2003) Sack and Kohn policy. monetary of operations the to important vitally is communication that claim the supports communication Just as the literature on credibility has ramifications for my analysis, the literature on literature the analysis, my for ramifications has credibility on literature the as Just In further examining what communication is, Blinder et al. (2008) define central bank bank central define (2008) al. et Blinder is, communication what examining further In and Barnhart 1989). (Hardouvelis shocks” adverse to forcefully respond to ability bank’s central the bolsters longer public’s the anchor help and households helps more and make uncertainty firms financial and economic reduces strategy policy bank’s central the of understanding public’s the Improving present. the as such prospects i particularly is but times all longer the about communication “Clear - term portion of the yield curve and on fut on and yieldcurve the of portion term - ending one. As an example they say, “while people are learning, an an learning, are people “while say, they example an As one. ending - informe

ises actual inflation” (Blinder et al. 2008). They show that the the that show They 2008). al. et (Blinder inflation” actual ises d decisions. Moreover, clarity about goals and strategies can can strategies and goals about clarity Moreover, decisions. d mportant in a time of low inflation and uncertain economic uncertain and inflation low of time a in mportant - term inflation expectations more firmly and thereby thereby and firmly more expectations inflation term rocess through which markets learn about central central about learn markets which through rocess - 7 run objectives of monetary policy is beneficial at beneficial is policy monetary of objectives run

ors andagents. private e monetary policy strategy, the economic economic the strategy, policy monetary e ures rates at those horizons” (Kohn horizons” those at rates ures -

run average inflation inflation average run eches by Chairman Chairman by eches unication and unication -

CEU eTD Collection against compared be to needs communication that fact the highlights She markets. signifi has rates interest of guidance forward on follows (2011) Yellen policy communication Reserve’s Federal the that arguing by(1989) Barnhart Hardouvelisand member Board Reserve Federal overlap. policy wher unconventional is This years. recent more in reiterated and Fed the by used one the precisely almost is communication concerning (1989) Barnhart and of unconvent midst the in standards historical by strategy communication its shift to Fed the led has himself Bernanke but significant, been certainly have challenges These 2004). Reinhart and assert, they Additionally, near with policy monetary conducting with inexperience policymakers’ that conclude Reinhart and Bernanke caveat, to a tied are commitments un an Conditional while economy the in developments of unconditional. types two and present They conditional overall. loweredcommitments: be should rates interest of structure term than period longer a for low th analysis, rate their In expected.” short previously the keep to public the to commitment of form some offering by imparted be can stimulus “additional that argue They zero. near or at are and stra management expectations an Bernanke out set (2004) Reinhart policy monetary unconventional for options modeling at attempt early an In circumstances. unusual in policy monetary conducting or policy monetary unconventional strategy fora problem. learning such communication better a prescribes consistently communication bank central on literature The final theme in the literature that is directly relevant to m to relevant directly is that literature the in theme final The ln wt Brak ad enats 20) taey te rsrpin f Hardouvelis of prescription the strategy, (2004) Reinhart’s and Bernanke with Along ional policy as I ional policy as below. uncover

“the communication challenges would be considerable” (Bernanke (Bernanke considerable” be would challenges communication “the - zero interest rates creates a challenge in calibrating actions. actions. calibrating in challenge a creates rates interest zero

conditional commitment would be tied to a date. As As date. a to tied be would commitment conditional

ey show that if such a commitment is credible, the credible, is commitment a such if that show ey 8

cantly changed the expectations of the the of expectations the changed cantly e the themes of communication and and communication of themes the e tegy for when nominal interest rates rates interest nominal when for tegy y own analysis is that of that is analysis own y CEU eTD Collection com Fed of case the study to concepts these apply to seek will years.increased has Fed been communication by applied inrecent the follow The years. recent in himself) Bernanke by (led Fed the by practice into put been has This zero. to close but positive remains rate policy the though even level desired the to rates interest real drive may period extended an for low keepi to committed is bank central the that Communicating zero. to close very is rate policy the when heightened is importance this that out point They line. in bank central communicat argumentsgreater fortransparency and communication. sound monetary policy making” (Yellen 2011). to essential are that independence and legitimacydemocratic the maintain to are banks central Spec public. general the into out feed will communication this that assume to seems and players market financial with communication bank central on focuses Yellen term. longer the over do to plans FOMC the sh communication the then policy, Fed of path planned the with line in not are firming policy of expectations market if and expectations So just as credibility, communication and unconventional policy have been analyzed. I analyzed. been have policy unconventional and communication credibility, as just So that argue They (2004). al. et Bernanke in given is context specific more A Ber Chairman 2007, in conference a at speech his In oiy betvs n srtg my ep nhr h pbi' long overall public's the and forecasts and valuableinput feedback invites thepublic from analyses and bank's the central the policy of discussion of open anchor Finally, economy. efficacy the of the functioning help improve substantially may can which strategy expectations, and objectives policy bank's central the about incoming clarity objectives….Third, to policy bank's central respond the further to that ways in likely data economic to is respond to tend policy will yields bond how and prices asset of information, understanding better a gain markets more make to households a businesses allows thereby and uncertainty financial policy and economic and reduces strategies objectives bank's central the of understanding public's the improving “First, ion is important in keeping policy expectations of the public and the plans of the the of plans the and public the of expectations policy keeping in important is ion ifically she argues, “Good communications are a prerequisite if if prerequisite a are communications “Good argues, she ifically - nomd eiin. eod i pattoes n financial in practitioners if Second, decisions. informed ould be changed to shift expectations towards what what towards expectations shift to changed be ould 9

ing section describes how the idea of of idea the how describes section ing

munication since the financial financial the since munication nanke laid out four general general four out laid nanke ” ( Bernanke 2007).

ng interest rates rates interestng - em inflation term

nd nd CEU eTD Collection more providing by information happen onwhat expects will it intheand economy what expec it communication technical its in transparent increasingly become has FOMC. members by given are speeches where events special of host the often is Fed the and testimony, give to offer cannot Fed the that saying rule a not is there although initiator, the be Generally testimo and speeches regulation. new a exploring or whole, a as economy the industry, financial the of part certain a investigating is Congress when occurs Congress before testimony Fed policy. p a address that conferences at given often aremost Speeches items. manyother and financialindustry the forrules new institution, Services Comm Financial House the to FOMC the of chairman the by given testimony a by accompanied is report The future. the for prospects and economy, global the as well as U.S. the in conditions it and releases Fed the that document of type longest the is Congress the to report semiannual The meetings. FOMC November and June April, the following conference press a 2011 April since and meeting), statemen policy a with accompanied are FOMC Congress. meetings tothe report semiannual policy monetary andFOMC the meetings attentionrelatingincludeto those most get the that communications The speeches.and reports communication hasyears. changed inrecent Fed how into insight key adds and research previous upon builds analysis own My crisis. Fed communications can be grouped into press rel press into grouped be can communications Fed These communication techniques and their contents have evolved over time. The Fed Fed The time. over evolved have contents their and techniques communication These action, policy a to related be can releases Press

Chapter 3. Description Chapterof 3. Fed Communications ittee and the Senateittee and Banking Committee. ny occur at the invitation of the event planner, meaning the Fed may not may Fed the meaning planner, event the of invitation the at occur ny includes a thorough analysis of Fed policy, current economic economic current policy, Fed of analysis thorough a includes riua eooi qeto ta rlts o monetary to relates that question economic articular t, the meeting minutes (released two weeks after the the after weeks two (released minutes meeting the t,

eases, testimonies, monetary policy policy monetary testimonies, eases, enforcement

against a financial financial a against ts the appropriate ts theappropriate

of the the of CEU eTD Collection technical actually information and a ofwords. deluge just than more been has communication Fed recent that show to able am I communication, communica Ithe analyze will how describing the Fed’s policy monetary unconventional ofepisode this of end the for horizon agiveseconomicagents information typeof This 2012). longer the as well as years three next the for rate interest expected the include zer near been has rate This time. first the for rise will rate policy the when of projections members’ FOMC publishes now Fed The communication. 2004 all taken to Prior policy. monetary of step transparency every almost at intentions its clarifying communi its in general decision Fed on have marketsthe that information of amount the on impacts unique had each have changes in displayed is survey that of content The 1994. since events transparency Reserve Federal of survey short a wrote (2012) Paschal and Cross occasion, that For 2012a). Reserve (Federal Congress by it upon placed mandate wi consistent most is index) expenditures personal consumption the by measured (as percent 2 of rate inflation an that established Fed the 2012, January in recently, Most occur. to were events certain if be would response policy monetary With the context for increased transparency and communication set, I will now move to move now will I set, communication and transparency increased for context the With of kind new completely a with accompanied was target inflation recent The place since the beginningplace the since of2009. conditional commitmentconditional

- steps were spaced apart by more than a year, but the last five major steps have have steps major five last the but year, a than more by apart spaced were steps making. By including new variables, clearer language and more information in in information more and language clearer variables, new including By making. ain, h Fd a sitd rm prtn bhn coe dos to doors, closed behind operating from shifted has Fed the cations, , and in the language of Bernanke and Reinhart (2004) clarify clarify (2004) Reinhart and Bernanke of language the in and ,

to keeping rates interest low. the timeline shown in Figure 2. The small technical technical small The 2. Figure in shown timeline the

tion shift during the recent crisis. By quantifying recentcrisis. during the shift tion 11

o since December 2008. The projections The 2008. December since o

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CEU eTD Collection generating for options communication. more continually is networking social and information of age the as list, exclusive an not certainly potential and feasibility technical practicality, political as such criteria hoc policy ad some against assessed are generate options The Congress. and Fed the to for options model theoretical the and data the from findings my communication, allows thelessons for policy communication tobeclear. model my of simplicity The weakens validity. assumption additional each model, any with As alternat different evaluate and variables proxy rough the the constraintsallows me of Thetobreakawayto respondfrom thatcommunication. model to Fed the for and policy monetary about communicate to Congress for incentives the analyze to respond dramatically financialcrisis. tothe credibility and ahit totake had but nooption have Fed may that the toshow Moscarini (2007) compa are polls The has. Fed the credibility public much how determining in useful are polls opinion These measures. policy certain and strong making avoid I so conclusions and all error, measurement is proxies with difficulty The variables. 1996 years the at look I variables, communica policy monetary text uses 5 Section in analysis the of part first The section. that in posed question specific the answer to order in methodology h cr aayi i ti ppr has paper this in analysis core The h fnl at f h aayi ue a ytei o te ieaue n m on literature the of synthesis a uses analysis the of part final The mathand simple usesanalysis a the part Section of 6provides the second Bernanke Chairman Fed, the publicopinions show to 5 Section in data survey use also I ow the datafor tospeakow the itself. Chapter 4. Chapter4. Methodology tion at the Fed and Congress in practice. Using several proxy proxy several Using practice. in Congress and Fed the at tion - 2011 to examine trends and relationships between the the between relationships and trends examine to 2011 - based data analysis to uncover the recent history of of history recent the uncover to analysis data based

three separate parts. Each part uses a separate separate a uses part Each parts. separate three 13

red to the logic of Dornbusch (1991) and and (1991) Dornbusch of logic the to red

ives for Fed communication strategy. strategy. communication Fed for ives

impact. The options presented are are presented options The impact.

ematical model onetary policy policy onetary CEU eTD Collection 1996 from Fed the from communication semi i it 2007, of end the at break structural the to Prior documents. shorter be to tend which releases press by followed line, in next generally are Length releases. Fed the that documents longest the are these totaling words with 10,000 or less. documents released Fed the when days are observations the of 86% hi a is 4 Figure 2,3249.5. of deviation standard a and 7,244.665, of mean a with observations 2,744 has variable This communication. Fed on series time the displays 3 Figure details). a brought I years sixteen last the over evolved has communication Fed how of picture 1996 general a get To 2012b). years the for available publicly reports policy monetary 5.1 tga soig o codd h dsrbto i i te 0 the in is distribution the crowded how showing stogram Federal ReserveCommunication Federal - annual reports. h Fds ulc websi public Fed’s The What is clear from Figure 3 is that there was a relatively consistent amount of of amount consistent relatively a was there that is 3 Figure from clear is What semi the from are spikes largest The

l f hs omncto it a ige ie eis Se pedx . for A.1 Appendix (See series time single a into communication this of ll

Chapter 5. Data Chapter5. Analysis te has press releases, testimonies, speeches and semiannual semiannual and speeches testimonies, releases, press has te

- 2007, but at the end of 2007 this all changed. This This changed. all this 2007 of end the at but 2007, - annual reports to Congress. As Congress. to reports annual 14

s easy to pick out the timing of the Fed’s the of timing the out pick to easy s - - wise, speeches and testimonies testimonies and speeches wise, 000 od bn Mr than More bin. words 10,000 -

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mentioned above, above, mentioned CEU eTD Collection Record monetary 1and includedofthe 12mentions between policy a displays 2,327 6 Figure has of 60% 26.884. than more that showing of histogram variable deviation The standard a 5. and 14.77 Figure of in mean a displayed observations, is series time The policy. monetary policy, monetary inflationism, inflationary, hyperinflation, inflation, Reserve, Federal Bernanke, Greenspan, words the used I session. in is it day Rec each for Congress in hearings and Congressional debates proceedings, the from taken is data Their details). for A.2 Appendix see 2012; Words (Capitol website Words Capitol Foundation’s Sunlight the from comes issue this addresses that data The Congress. through go to have will system the financial the to response its to due public the with credibility lost has Fed the if that is this for reason The debate. its in terms policy monetary mentions Congress U.S. the 5.2 policy expectations. andinflation stabilize and crisis financial the of effects the counteract to Fed the by used been has general in communication of volume larger a but 2), Figure in above shown (as public to information relay technical importantto morejust not was thatit shows data This crisis. the to response Fed’s the of part important very a been has communication (2004) Reinhart f mean the a with matched were crisis but 4,345.6, is 2007 the to variableprior the of mean The Fedcommunication. in significant jump of days darkest The policy. monetary unconventional wi perfectly coincides Congressional Communication Congressional The othe The o 2007 rom r part of the story that I am trying to expose relies on the frequency of which which of frequency the on relies expose to trying am I that story the of part r and

- 2011 is 12,754.8. Following the arguments posed by Bernanke and and Bernanke by posed arguments the Following 12,754.8. is 2011 h h bgnig o te iaca cii ad h Fds oe toward moves Fed’s the and crisis financial the of beginnings the th uniaie easing quantitative

the observations are days when the Congressional Congressional the when days are observations the o e a itr o Cnrsinl ocr with concern Congressional of picture a get to 15

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cl cnend h Fdrl eev (Dodd Reserve Federal the concerned ectly wvr sie ht oe i ery 00 ht onie wt the with coincides that 2010 early in comes that spike a owever rrelation between the Congressional communication variable and the the and variable communication Congressional the between rrelation 16

y are. One would not expect Congress to to Congress expect not would One are. y - rn 21) A son in shown As 2010). Frank nment of the of nment CEU eTD Collection Long of collapse the following rates Management 2012). (Investopedia interest reduced Fed the when Greensp Chairman by speeches key to related are 2000 to prior spikes Other Bernanke. Chairman of appointment the and Greenspan 2005 The 10.21. is mean post articles of volume Federal on data the to Similar search. LexisNexis the from articles of totals weekly is data The 6.8. of deviation standard a and 7.6 of mean ha series time This 8. Figure in displayed is data The details). for A.3 Appendix (See topics Congressional and Reserve Federal both referencing articles on search C Press Articles 5.3 mathematicalI Chapter model in 6. develop the into information this incorporate I Congress. to response Fed a as delayed as twice than is Fed the to response Congressional the that interesting is it However data. the ongress I construct yet another proxy variable. The data is article counts from a LexisNexis a from counts article is data The variable. proxy another yet construct I ongress In order to get a general picture of public interest in both the Federal Reserve and and Reserve Federal the both in interest public of picture general a get to order In

- 2007. The variable’s me variable’s The 2007. - 2006 ru o sie is spikes of group

an including the well the including an

an prior to 2007 is 4.51, and the post the and 4.51, is 2007 to prior an Reserve

related to the retirement of Chairman Chairman of retirement the to related

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a bit more bit a - 2007 2007 CEU eTD Collection I respectively. points percentage 4 and 6 of deficit a into fallen has favorability Bernanke’s show surveys recent most two The 30%. above recently most is and rising been has rating disapproval his and 2009, of end the since 40% below consistently were that h left) (top policies rating approval Bernanke’s crisis. financial the to response in implemented certain and institution an as Fed the Bernanke, Chairman concerning 2010c, 2010b, 201 2010a, 2009b, 2009a, Poll Opinion (Bloomberg Fed the of view public’s the of glimpse a provide News Bloomberg for Company & Selzer by compiled polls Opinion mone U.S. to solution democratic the remain to is Fed the If reform. monetary of engine the feeds what 5.4 programsis anincreasing continue, there media tren Fed the As Reserve. Federal the and Congress both on focused media the kept have 2011 September in Twist” “Operation of start the and 2011 of summer the in crisis ceiling debtThe drop a of sign no is there that is interesting is What out. on there from increases volume the and easing, quantitative of round first Fed’s the to related i shifted

Public Opinion Polls Opinion Public d 21e 21a 21b 21c 21) Fgr 9 hw te epne t questions to responses the shows 9 Figure 2012). 2011c, 2011b, 2011a, 2010e, 0d, The surge in press covering the Fed and Congress shows that public attention has has attention public that shows Congress and Fed the covering press in surge The The public opinion of the Fed is also an important concept in my analysis because it is is it because analysis my in concept important an also is Fed the of opinion public The n tandem with the Fed’s response to the financial crisis. The spikes in early 2008 are are 2008 early in spikes The crisis. financial the to response Fed’s the with tandem n tary policy management, the American public must be willing to let it do its job. its do it let to willing be must public American the management, policy tary

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CEU eTD Collection beleftaccountable should as it (39%)and independent that (37%). entirely?” abolished be it should or body, independent an as left or Congress to accountable more be should Reserve Federal the think you “Do following: the asked which 2010 December from question another displ “Accountability” labeled chart pie The help. not would QE2 believethat they said (54%) respondents of majority The economy. U.S. the help would (QE2) Treasuries whet (31%) the recovery. hurt or (29%) helped Bernanke not or whether on split were survey the to respondents that economic the to response the in role a had who individuals several about asking questions of group thea was in survey 2010 Also October abolished. or overhauled radically be either should Fed the said respondents the followinganOctober questionfrom 2010survey: to responses displays Fed” the of “View labeled figure The charts. pie five the by represented been has rating approval the that show consistentlydue “not below and bothto sure” 50% “unfavorable” responses responses. surveys three The institution. an as Reserve respons shows panel right top The Bernanke. Chairman on question the to “unfavorable” or sure” “not responded either have surveys seven the to respondents of majority A 50%. than more of respondents of percentage favorable net Only 25% of respondents said that they thought t thought they that said respondents of 25% Only her or not the respondent believed that the Federal Reserves plan to buy $600 Billion of of Billion $600 buy to plan Reserves Federal the that believed respondent the not or her h ases o uvy usin that questions survey to answers The The pie chart labeled “QE2” shows the responses to the December 2010 question asking asking question December2010 the to responsesthe shows “QE2” chartlabeled pie The just sayjust so.” goods employment? maximum of encouraging prices and the stable, keeping rates, interest for responsible is that authority independent the of view your reflects best descriptions following the of “Which

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he Fed should be left as it is, and 43% of of 43% and is, it as left be should Fed he

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CEU eTD Collection policy monetary in interest Congressional s general this represents different. was something that knew US the of portion good a Soon media. the through public general the to through filters releases press of sake the for just talking was Fed the of hundreds released also it programs, though as not Itis purpose. individual an had communications these Eachof communications. easing quantitative its with crisis recent the to instructive. policy, yet simple, unconventional quite is of model The credibility. logic of defense the and loss credibility clearly communication, more represent to model mathematical a mathematical section model in 6. the develop to me leads This built. be can arguments these which upon foundation theoretical crisis, the before back going data Without credibility public its of some lose to Fed the caused response the of size the and crisis financial the to respond to needthe that (2008) Moscariniand (1991) by theorized Dornbusch story was the that supports Thi policies. or structure purpose, its concerning understanding of lack a or Fed the towards distrust of attitude general a show questions other The questions. survey other to comparable survey the of subset a on focuses only question that However, Fed”). the of (“View Fed the on views the about question the to responses the and (“Abolish”) candidates nomination presidential Republican contradictio a is There contradictory. are results the of some but Reserve, Federal the with dissatisfied is public American the that The story that the model attempts to capture is the is capture to attempts model the that story The thesis. general my support all 5 section in above presented variables The

Chapter 6. Chapter6. Mathematical Model

ape (self sample hift in interest. Why should the Fed care if the general public is aware aware is public general the if care Fed the should Whyinterest. in hift

- dniid eulcn) n i teeoe o generally not therefore is and Republicans) identified n between the responses to the survey asking about the the about asking survey the to responses the between n

talking. The increase in speeches, testimonies and and testimonies speeches, in increase The talking. 21

following. When the Fed responded responded Fed the When following. there is need for a more more a for need is there

I will develop develop will I s CEU eTD Collection th if Even different. is something that public the to signal the is this itself; measure unconventional the of presence the is variable key third The presence. media consistent their This measures. unconventional Fed’s e the communication with concern Congressional describes and lag a with happens reactionary, purely is communication This Fed. the reforming at aimed is pu the with relationship Fed’s the maintains and establishes This interference. media much without public general the to leads and institution an arguments for its as Fed the in trust public’s the erodes This reckless. become has Fed the if concerned be to begin people increasingly continues, policy unconventional ef magnification a also is few are there because There time. real lagin actions Fed’s the to attention close pay to public ageneral the for incentives with happens This place. took change the why wondering about as changes care that when However, policy. monetary people few very normally, run are things When (2008). Mosarini of logic the to similar is which before done never has it that crisis this to response in things done has Fed to lot a has it believe I however, crisis, financial the of result general a be may This above. 8 figure in data coverage media the by shown as years few last the over than the ideacredibility of with the financialsector. explored commonly less is banking central of dimension its This public. protect the vis a to vis credibility Fed the for important is it So, doing. is it what like not does it if institution mo or remove to power the has also public the and is, it that institution the as Fed the built has Congress through public the this: is reason The programs? easing quantitative its of The public and Congress are rarely as interested in monetary policy as they have been been have they as policy monetary in interested as rarely are Congress and public The The first key variable in this situation is the Fed’s communication that feeds through to through feeds that communication Fed’s the is situation this in variable key first The abolishment or from torein in it independence.abolishment ffectively reaches the public because of Congress’s local connections and and connections local Congress’s of because public the reaches ffectively blic. The second key variable is the communication by Congress that that Congress by communication the is variable key second The blic. et n h pbi’ cnen ih oeay oiy A the As policy. monetary with concern public’s the on fect 22

it did in this recent crisis, many people start start people many crisis, recent this in did it

do with the fact that the that fact the with do e general e dify this this dify CEU eTD Collection (3) The legislative communication function byrepresented is followingequation the This completes thecentral function. bank’s communication “normal” P dependsLegislatureon monetary of onthe communication policy issues. C to component AR(1) an provides C communication. Where (2) fedThis is thecentral into bank’s function general withalag communication (1) from the central bank: bank central standard of types few very leaves communications. function The for communication the central bank This significance. no of speeches and legislature the before testimony inconsequential releases, press specific policy releases, exclu This interference. media much without public general the to through feeds th that time of undertaken. be importance ofthisvariablewill shownbelow. The length the is importance of variable fourth The variable. this for behavior normal not was 2008 in jump the that and before ever than larger much is it that tell easily can they is, base monetary the what understand doesn’t public t

s h cnrl ak omncto a tm t; time at communication bank central the is Central bank communication in the model below will be defined as communication that that communication as defined be will below model the in communication bank Central The logic for the first term is the following. The local connections and large media media large and connections local The following. the is term first the for logic The adummy is just indicatin termvariable last The communication greater towards trend deterministic a exists there that assume I First, t =0; if policy is deemed=0; takes policyunconventional it if is avalue of one.

to allow for decreasing returns to returns decreasing for allow to

t . ß is the coefficient of response showing how much C much how showing response of coefficient the is ß .

the deterministic trend’s influence on actual on influence trend’s deterministic the ρ

is the coefficient of autocorrelation and and autocorrelation of coefficient the is g if policy is unconventional. If policy is Ifpolicypolicyis unconventional. gif is

e unconventional policy is is policy unconventional e

is asfollows:

: des statistical des

CEU eTD Collection deviations areTable A.1. shownin standard and means their as well as parameters and variables all for results Full opposite. t just is case second to the while unwilling policy or unconventional the unable of end bank specific central a communicate the has case first The example. an as model the of (2) (1), Using and theAR(1) feature. term final the In transparency. toward trend underlying begin climb byand of a1each with per value 1 δ case, this In point. ending specific a determine to unwilling or unable is and policy unconventional an undertakes bank central the where is case other The value. that u at remains period each 1 by fall and (4) maximum a with begin will variable this 4), (e.g. periods of number certain a last will change policy a that asserts bank central central bank’s communication la the as large as twice be to lag communication legislative’s the for evidence some is there 5, section in briefly discussed as However, time. real in bank central the to respond one. appro simple be a would not curve learning is a constant Generally, is lag learning the that assumption The policy. monetary in change a to respond and about learn to public the for takes it time the represent lags The (C bank central the as level same the at communicate to flexibility the it give body legislative the of presence δ by increased further is This λ is the coefficient that shows how much legislative communication depends on the the on depends communication legislative much how shows that coefficient the is and (3) as well as the initial values specified in Table 1, I ran two simulations two ran I 1, Table in specified values initial the as well as (3) and t - 2 ) in any period. The trigger for the communicat the for trigger The period. any in )

which is the magnification variable. In the case where the the where case the In variable. magnification the is which 24 priate so that eventually the legislative would would legislative the eventually that so priate iod until policyiod until returns to“normal.”

is the coefficient of autocorrelation autocorrelation of coefficient the is ion is the policy change (P change policy the is ion ntil it reaches 0 and and 0 reaches it ntil

t will will he t - 2 ). ). CEU eTD Collection the in people many generalconferences). bankpress central watch public not (i.e. communication at attempts its in public the of attention the “yel the in behind falls quickly communication bank Central topics. other to turn to attention legislative allows model the quickly how shows and L in off drop The here. presented clearly is feature this but lags, the through worked is policy desires its communicate to body legislative the of persistence The normal. to returned has it after and policy the of end the towards volume communication i ψ λ δ P ß ρ α µ γ Parameters L C Variables Endogenous mmediately apparent that the unconventional policy itself is not the main driver of of driver main the not is itself policy unconventional the that apparent mmediately t

iue 0 hw te is cs smlto rsls o C for results simulation case first the shows 10 Figure

communication legislative for coefficient Autocorrelation transparency toward trend on Dependence magnification Policychange variable dummy Policychange communication legislative on Dependence communication bankcentral for coefficient Autocorrelation leve transparency to returns Decreasing period in each increases Amount transparency transparency bank central of ofthe level Indicator Communication Legislative C Description entral Bank Communication Bank entral Model variables, parameters, descriptions and initial values initial and descriptions parameters, variables, Model

Table 1 1 Table 25 l

ling match” since it does not easily gain easily not does it since match” ling 0.75 0.1 order 1 30, …, 22, Pt=0 t=21, Pt=1, 20, …, 12, t=11, Pt=0; 10, 2, …, 1, t=0, 0.25 0.75 0.5 0.01 t=0, Lt=0 t=0, Ct=0 t=0, Example Valuein , 2, 3, 4, 5, 6, 7, 8, 9, 10 and in and 10 reverse 7, 8, 9, 4, 5, 6, 2, 3, ,

gamma_t

t n L and

=0 t

on a linear scale. It is is It scale. linear a on

occurs at t=23 at occurs into the model the into

CEU eTD Collection uncondition an and zero near rates interest keeping to commitment conditional a between faces Banker Central a that tradeoff the essentially is This timing. policy on communication w case the in muchsmaller Figure is The(2). Bank’s communication displayed Central Thisis in 14. deficit C between difference will it long undertake policy. theunconventional how communicates clearly bank central the when case the for but 11 and 10 communication volume as theunconventional policy in growth the to relative small appears but visible, is communication bank central in jump C both for this displays 11 Figure policy. unconventional the of beginning Switching the the Switching The difference in outcomes be outcomes in difference The Figure to analogous are These model. the of results 2’s Case display 13 and 12 Figures t cer omncto o plc tmn ta i te ae hr tee s no is there where case the in than timing policy on communication clear ith y t

(1) and L and (1) scale to logarithmic allows closer observation of t of observation closer allows logarithmic to scale t

(1) and comparing it to the difference between C between difference the to it comparing and (1) tween simulation 1 and 2 can be examined by taking the the taking by examined be can 2 and 1 simulation tween

continues.

he dynamics at the the at dynamics he t

and L and t . The initial initial The . t (2) and L and (2) al al t

CEU eTD Collection th Though policy. unconventional the for reasoning its and intentions its public the to relate consistently and quickly to able be to infrastructure unconventional poli for run to bank time central the long for better a is it take policy, monetary would affect to communication it legislative since However, bank. central the against check useful a t of independence policy the violate to not careful is that body legislative the for Also, policy. unconventional the for game end its communicating clearly by situation its improve can it deficit, the eliminate to body legislative effect as communicate to able be not may bank central the Though deficit. this minimize to should bank central the credibility, public its protect to order In 2. bank. centra the of opposition in be to communication legislative restricting am I 5, Chapter in above discussed evidence the given However, policy. bank central against or of support in be credibili public a into attack an tothe samecommitment policyand 2004). (Bernanke Reinhart In this specific case where legislative communication on monetary policy is policy monetary on communication legislative where case specific this In nte lso i ta te eta bn sol ivs i is communications its in invest should bank central the that is lesson Another and 1 scenarios between deficits communication the in difference the shows 14 Figure

rather than a defense of the central bank, the communication deficit translates translates deficit communication the bank, central the of defense a than rather cy for acy for shortamount oftime. ty loss. In a more general sense, legislative communication could either could communication legislative sense, general more a In loss. ty he central bank without public support, communication is communication support, public without bank central he 27

e central bank communication will most most will communication bank central e

ively and quickly as the the as quickly and ively

interpreted l

CEU eTD Collection when trouble interpreting minutes. themedia“Fedspeak”FOMC ishaving thetechnical of public the with traction gain to Fed the for option good a certainly is it onlyanswer, the not is While measures. policy of misunderstanding a avoid to order in whole a as message its communicate Fed the help and regions their to connected more become to Feds regional and economists other disciplin makers, policy press, the public, the to ties stronger that noted He debates.on the in weigh to blogsmoreto have well do Fedwould the that arguedrecently and f a presented He Fed. Louis other more economicstoimprove frequently communication. bloggers inorder blo Fed current The other. each mirror all that blogs more just not and blogs better have to be should goal the However, zero. basically is blogsmore up setting of cost the and read widely alreadyareFed) NY the at ( blogs its of Two discussions. the in join to well do would Fed the and economics, in evaluationpolicy and discussion centralto Fed? communicatio practical the are what is on focuses section this that question The credibility. bank central protect to body legislative a with competing of issue the for even unc during likely again will thesituation continue beimproved. tobedwarfed by thatof thelegislative,

The model above provides a simple comparison between two communication strategies communication two between comparison simple a provides above model The Another option for the Fed would be to allow the regionalthe allow to be would Fed the for option Another St. the to presentation a in blogs Fed better for case the out set recently (2012) Thoma becoming are Blogs use. to begun actually has Fed the that one is option first The es are all benefits of having a good blog. Blogs could allow the staff members of the of members staff the allow could Blogs blog. good a having of benefits all are es onventional policy. It is clear that the strategy of expectations management works works management expectations of strategy the that clear is It policy. onventional Chapter 7. Options Chapter7. Policy s ol bcm mr feil i ter otn ad nae with engage and content their in flexible more become could gs ew key debates that have occurred in the economics blogosphere economics the in occurred have that debates key ew Macroblog

28 at the At the at

lanta Fed and Fed lanta offices to create positions for positions create to offices

Liberty Street Economics Street Liberty n options for the for options n

blogging

CEU eTD Collection a to itself exposed loss. has credibility bank the crisis, the to response Fed’s the of because that argued c of wave This 2007. of end the at communication Fed of amount the in break structural a was there counts, word on based that, shown have I communications. the of volume and content Fed the years, foreconomic future policy. plans own their and policy Fed about questions particular their of aware be to policymakers c consistently mutual to be would goal The more Hill. Capitol on makers policy by with openness a threatened be for not should Fed necessary the of is independence The Congress policy. of understanding with relationship open An there. policymakers with the public hadthanenough more togive requests a full them above discussed as Congress and Reserve Federal the in interest large the given However, them. with connect or speak to opportunities liaisons the allow to public the of willingness the on con to opportunities more to the in students university up it opening by image public Fed’s the help engage would This 2012b). Reserve (Federal classroom could liaisons regional the University, Washington Ju mission. general its with connected are actions Fed’s the how about them teach to and policy Fed about questions answer to order policymakersin local with connectconsistentlywould individuals These liaisons. government ommunication continues in tandem with the Fed’s unconventional monetary programs. I also also I programs. monetary unconventionalFed’s the with tandem in continues ommunication I have argued that along with its unconventional monetary policy of the past several several past the of policy monetary unconventional its with along that argued have I relationships build to liaisons more up set could Fed the D.C., Washington, In

in section 5, it would not be surprising if a person designated by the Fed to connect connect to Fed the by designated person a if surprising be not would it 5, section in has engaged in a program of intense communication with changes both to the to both changes with communication intense of program a in engaged has h US Cnrs ad h mda ae xlie ti ad the and this exploited have media the and Congress U.S. The

nect with the public. The feasibility of this option depends really really depends option this of feasibility The public. the with nect Chapter 8. Conclusion Chapter8. st as Chairman Bernanke recently lectured at George George at lectured recently Bernanke Chairman as st 29

- time jobinthat role.time onnect with with onnect with the with

y have have y CEU eTD Collection andboth public technical credibility. defend to forward going used be should strategy communication the of effectiveness the to commu Fed for era new a of beginning the just is uncovered have to ability its I communication improve in surge the to If helpful. do be would public can the with effectively it communicate anything and 2012), DeMint see example recent a cons almost is policy Fed’s the of Criticism soon. time any U.S. the in over be not will policy monetary unconventional 2014, until zero near remain to rates interest for the Fed. reform to action Congressional or losses credibility further avoid to helpful be may generated importan quite be to shown is communication Thus loss. credibility the of size the shrink can bank central a policy, unconventional for frame time clear a legislative communicating by that shows model by dwarfed be can this and communication communication bank central policy, unconventional contributed toanerosion sn ti ifrain hv dsge a designed have I information this Using As the Fed continues to operate in an unconventional way, the advice my analysis has has analysis my advice the way, unconventional an in operate to continues Fed the As

With “Operation Twist” due to run out at the end of June 2012, and with expectations withexpectations 2012,and June the end of at “Operation torunout Twist”With due t not onlyt not for policy credibility public credibility. but alsofor of theFed public trustin and policies. its could create a public credibility problem for the central bank. The The bank. central the for problem credibility public a create could

oe that model nication, then improvements improvements then nication,

shows, in the case of of case the in shows,

tant nowadays (for (for nowadays tant CEU eTD Collection future. unconventional its pol future attacksas from credibilityand protectitself media m policy from questions answer to available being by misunderstood not is policy Fed that sure policy to available be consistently would In oneeconomics just such blogcreate blogs. fact, could strongerrelations. public interactive plat a create could blogs as such media social of use The public. the to information more channel to order in relationships media and connections local creating mean would This general. in public the a to lead change of may theFedwhich beenvironment lessthanoptimal. inthe working could loss credibility public a Eventually stance. unconventional its continues h particular, in Congress, crisis. the since implemented has it policies the and Fed the of opinion general its lowered since has public Congress and media The credibility. public of its of volume centra the the protected not has it credibility, policy protect and markets and content stabilize the to Fed the allowed has both shift communication this while increased However, communications. has Fed) (the Reserve Federal akers as well as media spots and local events. By building a locally connected and social social and connected locally a building By events. local and spots media as well as akers n adm ih t ucnetoa mntr plc sne h beginn the since policy monetary unconventional its with tandem In nte impo Another this against defend to order In -

based communication infrastructure, the Fed could seek to regain some of its public its of some regain to seek could Fed the infrastructure, communication based way way form for such communication. However, the blogs should be administered in an an in administered be should blogs the However, communication. such for form by allowing comments, responding to comments, and engaging other key key other engaging and comments, to responding comments, allowing by Summary and Summary ConclusionsPolicy rtant o ption

ol b t cet Cnrsinl n lcl iios who liaisons local and Congressional create to be would , the Fed should recalibrate its communication to target target to communication its recalibrate should Fed the , as incentives to attack the credibility of the Fed as it it as Fed the of credibility the attack to incentives as - makers. These individuals could be used to make to used be could individuals These makers. 31 have

exploited this credibility and the general the and credibility this exploited l bank from facing a loss loss a facing from bank l icy continues into the the icy into continues

ing of 2008, the the 2008, of ing

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300.7 159.7 87.63 48.99 28.26 16.95 10.51 265.7 176.4 580.4 (1) C 0.22 0.10 0.00 6.70 4.59 3.57 2.94 2.11 1.03 0.95 0.86 0.77 0.67 0.56 0.45 0.34 t

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const. const. 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 0.01 µ .01

const. const. 35 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 0.50 α

const. const. 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 ρ

const. const. 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 0.25 ß

0.475 0.323 P 0.00 0.00 0.00 0.00 0.0 0.00 0.00 0.00 0. 0.00 0.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 0.0 0.00 0.00 t 00

0 0

3.095 1.774 10.00 (1) δ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 9.00 8.00 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00 0.00 0.00 t

3.095 1.774 10.00 (2) δ 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 0.00 0.00 0.00 t

const. const. 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 0.10 λ

const. const. ψ 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75 0.75

CEU eTD Collection 30 29 28 27 26 25 24

410.5 483.5 559.8 633.6 694.6 726.1 701.6 (1) C t

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3 0 0 3 4 9

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2 7 6 4 2 6

Ɣ 0.24 0.30 0.29 0.28 0.27 0.26 0.25 Table A.1: ModelTable Output

0.01 0.01 0.01 0.01 0.01 0.01 0.01 µ

36 0.50 0.50 0.50 0.50 0.50 0.50 0.50 α

0.75 0.75 0.75 0.75 0.75 0.75 0.75 ρ

0.25 0.25 0.25 0.25 0.25 0.25 0.25 ß

P 0.00 0.00 0.00 0.00 0.00 0.00 0.00 t

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