Communication and Expectations – ComExp

Abstract

The recent crises (financial, COVID, war in Ukraine) have revived the importance of management of agents’ expectations. For example, some of the measures that were put in place during the COVID pandemic (financing facilities/subsidies) as a mean to prevent failures and bankruptcies also curbed negative expectations about the future economic outcomes. In the most recent period that has followed the breakout of the war in Ukraine, central banks have been putting a lot of effort to better communicate their stances with the hope of managing inflation expectations by adopting clear, consistent and engaging communication, which has now become a key element of the central banker’s toolbox. In other words, the recent economic developments have resuscitated two key pillars of economic policy: communication and expectations. This project aims at bringing together empirical, experimental and theoretical tools to provide with a twofold objective. First it aims at shedding new light on the role of expectations, and in particular shocks to these expectations, in shaping macroeconomic dynamics. Second, it aims at understanding better the role of communication in the management of these expectations. The first objective will be achieved through the development of new quantitative methods to identify shocks shifting expectations and the development of theoretical macroeconomic models which will put structure on the underlying mechanisms propagating these shocks. The second objective will be achieved by a combination of empirical methods (NLP, econometrics) and experimental methods (development of a simulation tool allowing to test various central bank communication strategies).

Project Dates: October 2023 - October 2027

Contact in TSE: Patrick Fève