The Economic Effects of Central Bank Communication

Information disseminated by the central bank is public information. Macroeconomic environments are often characterized by positive externalities. In these environments, public information serves as a focal point for higher-order beliefs and affects agent's action more than private information. It is efficient to provide public information with highest possible precision. In addition, social welfare may depend on the monetary policy credibility. The higher the credibility is, the less is the requirement of the relative precision of public information. It is important for People's Bank of China to persist in improving monetary policy credibility and increasing its communication skill.