Does Communication Influence Executives’ Opinion of Central Bank Policy?

Abstract

We analyze the economic impact of central banks sensed by business executives in a sample of 61 countries from 1998 to 2016. Based on a survey conducted by the Institute for Management Development (IMD), we find compelling evidence that intensive central bank communication worsens the perceived impact. During the global financial crisis (GFC), this effect became even stronger. In contrast, economic growth and a positive output gap improve the opinion executives have of their central bank’s impact on the economy. Moreover, although less robustly, higher unemployment, and higher short-term interest rates worsen executives’ opinion, while market uncertainty improves it. The level of inflation and an inflation targeting regime, central bank independence and transparency, financial crises, the zero lower bound constraint, forward guidance, the performance of the stock exchange, and the volatility of the exchange rate seem to be unimportant in this regard.

Keywords: central bank communication, economic impact, perceived competence and trust in central banks, panel data, executive survey

JEL Classification: E58, E52, D83, D80