Central bank communication on fiscal policy

The issue of central bank communication on fiscal policy has so far received very little attention in the literature. This article aims to shed light on the determinants of central bank communication on fiscal policy by analysing the intensity of central banks' fiscal communication for five central banks (the Federal Reserve, the ECB, the Bank of Japan, the Bank of England and the Swedish Riksbank) over the period 1999-2011. The ECB communicates intensively on fiscal policies, in a normative way. The other central banks emphasise foreign fiscal developments, fiscal policy as input to forecasts, or the use of government debt instruments in monetary policy operations. The empirical analysis indicates that the financial crisis has overall increased the intensity of central bank communication on fiscal policy. The evolution of the government deficit ratio is a driver of the intensity of fiscal communication in the euro area, the US and Japan, and for Sweden since the start of the crisis, while in the UK its intensity is related to government debt developments as of the start of the crisis.

► This article is the first to explore central bank communication on fiscal policy. ► It looks at the central banks of the US, euro area, Japan, UK and Sweden. ► It finds that the ECB communicates much about fiscal policies, mainly normative. ► Estimates confirm that fiscal trends drive fiscal communication by central banks. ► Generally, this effect increased with the start of the financial crisis.