Credibility Gains from Communicating with the Public: Evidence from the ECB’s new Monetary Policy Strategy

We show that the announcement of the ECB’s Strategy Review and the revision of its inflation target in summer 2021 went largely unnoticed by the wider public. Although it is hard to reach out to this group, we find evidence that communicating key elements of the ECB’s new monetary policy strategy can enhance the perceived credibility that price stability will be maintained in the medium-term. Randomised information treatments in the new Consumer Expectations Survey reveal that providing an explanation of the stabilising role of monetary policy under the symmetric inflation target has the strongest positive impact on credibility among survey respondents. It also boosts credibility among those with low financial literacy and generates more persistent credibility gains, even in an environment characterised by higher inflation. Adding considerations that consumers can easily relate to, such as commitments to take better account of climate risks and a promise to better capture housing costs in inflation measurement, does not alter the credibility gain.