Central Banks’ Communication as Reputation Management: How the Fed Talks Under Uncertainty

Abstract

This article advances a reputation‐based account to explain the relative salience that different issues assume in central banks’ communication. Based on an innovative dataset consisting of a corpus of speeches by the members of the Board of Governors of the Federal Reserve System of the United States (also known as the Fed) delivered from 2006 to 2016, the analysis shows that the most salient issues in the Fed's communication are shaped by reputational concerns about policy reversals. Specifically, when these concerns are higher, the Fed is more likely to focus on issues related to areas where its reputation is weak or not yet established—that is, issues related to credit easing and systemic financial regulation. In contrast, issues related to activities where the Fed's reputation is established are likely to become less salient—that is, issues related to economic activity and inflation. A similar pattern of issue attention is observed when the Fed addresses political audiences compared to other audiences.

Keywords: central banking; communication; Federal Reserve; topic modelling; reputation

JEL Classification: E58