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BoC Staff Research On Risk Of Communicating Inflation Uncertainty

CANADA

BoC staff have published research (paper here) looking at the impact of communication on household inflation expectations.

  • They find that focusing communication on “information about outlooks” is “more effective and more relevant than” recent inflation and Bank targets.
  • “We observe no downside to communicating about inflation with uncertainty on two measures: the level of expected inflation and uncertainty about it.”
  • “However, communication with uncertainty weakens the link between expected inflation and spending plans, a key channel in the transmission of monetary policy. Communicating precise inflation outlooks can lengthen the effects of these communications on households.”

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