Research On The Influence Of Central Bank Communication On Social Welfare

Central bank communication is a key component of central bank toolbox,which has a great impact on macroeconomic performance and overall social welfare.Since the 1990s,central banks in western countries acknowledged its importance and begun to adopt a more active communication strategy.However,after the financial crisis in 2008,some countries' central bank communication strategies have become increasingly closed,which reoccurred the controversies about central bank's communication policy and its effect in acdemia and industry.China's central bank has made great efforts to improve the central bank communication,but its communication is still unsatisfactory.For example,in the "811" exchange reform in 2016,due to poor communication between the People's Bank of China,RMB has experienced a rapid depreciation.This market volatility caused a huge loss of social welfare.It is of great theoretical and practical significance to study what kind of communication strategy should be taken for central bank,as a social welfare carer,in the background of the fluctuation of "closed-open-stagnation" of central bank communication in western countries and the rising tendency of central bank communication in China.By analysing relevant literature of central bank communication and its effect on social welfare,we found that issues above still need to be further investigated.First,the rational expectation theory and the monetary policy theory have more research on the relationship between monetary policy and macroeconomic performance,but have less research on the central bank communication and its effect on social welfare.Secondly,the research on central bank communication focus only one side of it.There is a significant lack of research on the ensemble of central bank communication.Finally,the research on domestic and international central bank communication and its macroeconomic effect varies significantly.We are in lack of the relevant theoretical and empirical research on the actual situation in China,which can hardly support the policy making and its implementation of communication policy of the People's Bank of China.This paper summarizes the problems in the communication of the central bank in china by analyzing the status of central bank communication.By constructing the analyzing framework of central bank communication,we abstract the publicity degree and precision degree of central bank communication.Based on the basic academic paradigm of rational expectation theory and monetary policy theory,this paper explains the mechanism of central bank communication on social welfare by precision and publicity,through offering logical analysis and mathematical model of central bank communication.Based on the analysis of the traditional central bank communication model,we extend the Lucas island model,embedding the publicity and precision into the central bank communication model.It is concluded that the precision degree of the central bank communication is positively correlated with social welfare,and the publicity degree of central bank communication is either positive correlated with or negative correlated with social welfare.On the basis of this,this paper analyzes the transmission mechanism of the central bank communication's influence on social welfare,establishing three specific transmission paths,which are the information entropy effect,the transparent effect and the comovement effect:(1)the information entropy effect transmission path,is that the central bank communication raise its precision to reduce the information entropy in disclosure,making the economic agents have more accuracy about the economy and its expectation,so as to stabilize the macroeconomic output and to improve social welfare.(2)the transparency effect transmission path,is that the gain of public communication from central bank has enriched the information set of economic agents,improving the economic judgment and expectation accuracy,and further reduce the fluctuation of economic behavior and macroeconomic output,spurring social welfare.(3)the comovement effect transmission path,is that the gain of the public communication from central bank makes the economic agents understanding the behavior of others more,thus improving the homogeneity of economic activities,exacerbating the volatility of macroeconomic output and reducing social welfare.This paper examines the impact of China's central bank communication's influence on social welfare.By text analysis,we measure the precision index of central bank communication of People's Bank of China,and complete an empirical study on the time series of China from 2001 to 2010 with autoregression model.On the basis ofthis,in order to furtherly study the applicability of theoretical conclusions and to conduct international comparative study,this paper makes an empirical test on the influence of foreign central bank communication on social welfare and compares results with China's empirical results.The conclusions of this paper are as follows:(1)China's central bank communication is unsatisfactory.By summarizing the status of central bank communication,it is found that the level of central bank communication in China is lower than that of some more mature central bank communications in developed countries.The People's Bank of China did not start until the 1990s,and was influenced by government intervention.The People's Bank of China is lack of normality,precision and publicity,which greatly reduces the communication efficiency.(2)Central bank communication needs to be divided into two dimensions:precision and publicity.Studies have shown that both on theoretical and empirical levels,central bank precision and central bank publicity,are often get mixed.By constructing the analyzing framework of central bank communication,we can find out that central bank communication includes not only the degree of publicity but also the degree of precision.By constructing theoretical model and selecting empirical indicators,the central bank communication is divided into two dimensions:precision and publicity.(3)The conclusion of the theoretical analysis shows that there are significant differences between the two dimensions of the central bank communication on social welfare,the influence of precision on social welfare is positive,and the influence of the publicity on social welfare is either positive or negative.The improvement of communication precision can make the economic agent understand the economic information more accurately,avoid the decision-making variance caused by the fluctuation of information and economic activity,so it has a positive effect on social welfare.The improvement of communication publicity on the one hand makes the information set of the economic agent rich,so that the economic agent's expectation is becoming more accurate,which address a positive effect on social welfare,on the other hand it will lead to mutual understanding of economic behavior for economic agents.It enhances homogeneity of economic activity,increasing economic volatility,and addresses negative effects on social welfare.Therefore,the impact of the publicity on social welfare is either positive or negative.(4)The improvement of precision of the central bank communication has a positive influence on social welfare,and the improvement of publicity also has a positive influence on social welfare in China.According to the empirical analysis,we found that the influence of central bank communication between on social welfare in china is in line with the theory conclusion,and the communication precision and publicity both have significant positive effect on social welfare.(5)The influence of communication precison of China's central bank on social welfare is similar to that of foreign countries,and the influence of communication publicity on social welfare in china is different from that of foreign countries.By empirical research,we show that the empirical influence of central bank communication on social welfare is consistent with theoretical conclusion,both in China and in some developed countries.The influences of central bank's communication precision on social welfare are all positive,and The influences of central bank's communication precision on social welfare varies,positive in Singapore,Japan and China,and negative in the United States.The contributions of this paper are mainly as follows:(1)this paper constructes a theoretical framework of the impact of bi-dimensional central bank communication on social welfare,including precision and publicity.Most researches have been done only to examine a single dimension of the central bank's communication,or to mix the different dimensions.In this paper,through the construction of analytical framework and the establishment of mathematical model,embedding central bank communication precision and publicity both into a unified theoretical framework.We analysis of the central bank communication precision and publicity on social welfare mechanism,adding up central bank communication research to the rational expectations theory and Monetary policy theory.(2)this paper establishes the transmission mechanism of the central bank communication precison and publicity on the social welfare impact.The current research on transmission mechanism of the central bank communication on social welfare is still rare.This paper establishes the information entropy effect transmission mechanism,the transparent effect transmission mechanism and the comovement effect transmission mechanism,analyzing how the change of the communication precision or publicity of central bank causes the change of the information set,acts on the economic agents' behavior,the macroeconomic output fluctuation and social welfare changes.Among them,the information entropy effect transmission mechanism is,the improvement of the communication precision of the central bank on reducing the information entropy caused by the disclosure of information,making the economic agents to determine the accuracy of information and expectation,thus stabilizing the macroeconomic output and improving social welfare.Transparent effect transmission mechanism,that is,the promotion of public communication in the central bank has enriched the information set of agents,improving their judgments and expectation,and furtherly reduced the fluctuation of economic behavior and macroeconomic output.The comovement mechanism is,how the promotion of the public communication of the central bank makes the agent more understanding of the behaviors of others,thus improving the level of homogeneity of economic action,exacerbating the volatility of macroeconomic output and reducing social welfare.(3)this paper identifies the quantitative indicators of communication between the central bank communication accuracy and the communication level of the central bank.The existing literature on the central bank communication empirical research,the lack of communication for the degree of communication and communication accuracy of data identification.In this paper,the quantitative identification of central bank communication is carried out.The accuracy of communication and the degree of communication and publicity are characterized by the accuracy of central bank inflation forecast and the disclosure degree of disclosure information.In particular,the People's Bank of China's "monetary policy implementation report" were analyzed,gain the access to the Chinese central bank communication accuracy of the quantitative indicators.Based on the quantitative indicators of communication,this paper uses the measurement model to carry on the empirical research from the two aspects of the accuracy and the public degree,analyzes the influence of the different dimensions of the Chinese central bank communication on the social welfare and makes a comparative analysis with the foreign countries on empirical results,This paper confirms the theoretical derivation that the impact of communication accuracy on social welfare is positive and the effects of communication openness on social welfare can be both positive and negative,which provides the basis for the communication policy making for the central bank of China.