The Impact Of Central Bank Communication On Household Consumption

Before 1990s,most central bank operations regarded privacy as the main principle.Under the influence of the view that the monetary policy is useless by rational expectations school,central banks around the world have been silent on monetary policy operations,and believe that opaque monetary policies are effective.In order to ensure the effectiveness of monetary policy,many central banks tended to avoid communication or obscured information while communicating.However,after 1990s,with development of theory and practice,more and more central banks become aware of the importance of central bank communication.Central bank communication can guide the public’s expectations,thereby influencing the public’s economic decisionmaking.With the increase of the independence of central banks,they are paying increasing attention to communication.To strengthen the communication between the central bank and the public,People’s Bank of China has taken plenty of measures.In addition to the economic data released on a daily basis,they also publish the Monetary Policy Implementation Report and the minutes of the regular meeting of the Monetary Policy Committee every quarter to communicate with the public,and release information about the future monetary policy,predicting future monetary policy measures.In addition to the above regular methods,the governor of the central bank will also give some speeches or accept interviews from time to time,and the website of the People’s Bank of China has added a Communications column to release information about economic situation and monetary policy,for the convenience of the public to know the intentions of the central bank more quickly.It can be seen that the central banks pay more and more attention on communication.However,the current domestic research on the effectiveness of central bank communication mainly focuses on the financial market,and no research has focused on household consumption.Although some studies have analyzed the overall impact of central bank communication on output,investment,and consumption from the macro level,they only analyzed consumption from the perspective of price level,and did not pay attention to household consumption scale.In view of that,we aims to explore the impact of central bank communication on consumption in this thesis.We use the balance panel data of 22 provinces and use 51 quarters between 2007 and 2019 as the research sample.First,we analysis the theoretical mechanism of the central bank’s communication influence on consumption.Then we use the word extraction method to calculate the communication index.Next,we use the comprehensive FGLS model to study the effect of central bank communication on consumption,and then we examines the mediation effect of the amount of resident loan on the relationship between central bank communication and consumption.Finally,the heterogeneity of the impact of central bank communication on consumption is tested from multiple perspectives,including the asymmetric effect of central bank communication on consumption,the central bank’s emphasis on communication,differences in communication content and communication methods,and regional differences,and the robustness checks has also been implemented.After a series of analysis,we comes to several conclusions.First,central bank communication can affect residents’ consumption behavior,and this effect is positive.On the one hand,the central bank’s communication can directly affect residents’expectations and consumption behavior through signal channels and coordination channels.On the other hand,the amount of resident loan also plays an intermediary role between central bank communication and consumption.Second,the direction of the central bank’s communication has an asymmetric impact on consumption,and the effect of tight communication on consumption is greater than loose communication.Third,the increase in the central bank’s emphasis on communication can enhance the impact of central bank communication on consumption.Fourth,written communication has a more significant impact on consumption than oral communication,and communication on monetary policy has a more significant impact on consumption than communication on economic conditions.Fifth,there are regional differences in the impact of central bank communication on consumption.Because of the differences in economic levels and education levels in the eastern,middle and western regions,the influence of central bank communication on consumption is more significant in the eastern and central regions than in the western region.We can see from the research conclusions that central bank communication can effectively affect household consumption.In order to give better play to the role of central bank communication,we have some suggestions.First,the status of central bank communication as a kind of monetary policy should be improved,and the central bank communication mechanism should be improved to give better play to the role of monetary policy.Second,the credibility and accuracy of information provided by the central bank should be enhanced.The central bank should try to maintain the consistency between central bank communication and actual policies,only in this way can the public’s trust in the central bank be improved.In addition,the central bank should pay attention to the choice of communication methods and content when communicating.Written communication and monetary policy communication are more effective.Finally,the central bank should pay attention to the promotion of communication,improve public understanding of it,and reduce the regional differences in the impact of central bank communication.