We model central bank communication when there is disagreement between the markets and the central bank about the central bank’s confidence surrounding its point forecast. We show that such a disagreement leads the markets to misunderstand a given announcement, so that the markets either over- or underreact to the bank’s announcement. Communicating only a part of the central bank’s information set is a way to correct the markets’ over- or underreaction. The model also produces predictions for how the central bank’s statement drafting process can take the disagreement about uncertainty into account, which we find support for in data on Federal Reserve System communication.
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