Bounded Rationality in Central Bank Communication

2024/11/06 by W.K. Kim, C. Lee, Kim, Wonseong +1
Economics, Econometrics and Finance · #Applications (stat.AP) #Econometrics (econ.EM) #European Monetary and Fiscal Policies #FOS: Computer and information sciences #FOS: Economics and business

paper · pdf · doi:10.48550/arxiv.2411.04286

openalex publication_date 2024/11/06 · openalex created_date 2025/10/10 · openalex updated_date 2026/07/28

Abstract

This study explores the influence of FOMC sentiment on market expectations, focusing on cognitive differences between experts and non-experts. Using sentiment analysis of FOMC minutes, we integrate these insights into a bounded rationality model to examine the impact on inflation expectations. Results show that experts form more conservative expectations, anticipating FOMC stabilization actions, while non-experts react more directly to inflation concerns. A lead-lag analysis indicates that institutions adjust faster, though the gap with individual investors narrows in the short term. These findings highlight the need for tailored communication strategies to better align public expectations with policy goals.

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