Monetary Economics and Communication: New Data, New Tools, New and Old Questions (NewMonEc)

Funded by the European Union. Views and opinions expressed are however those of the author(s) only and do not necessarily reflect those of the European Union or the European Research Council Executive Agency. Neither the European Union nor the granting authority can be held responsible for them. European Research Council Consolidator Grant - Agreement Number 819131.

The Agenda

In the last 25 years, communication has become a core lever of monetary policy. This has important implications for academic research in monetary economics – an area intrinsically linked to the policy environment. The framework change raises new questions, and we must rethink how we empirically study existing questions. We need new approaches and new data.

My ground-breaking research agenda, rooted in important academic questions, comprises of pioneering projects across 3 related themes that emphasise the increasingly-important role of central bank communication in policy.

Theme I concerns the fundamental empirical question in monetary economics: what is the effect of monetary policy? Though an old question, two projects innovate by using tools from data science to develop new measures of monetary and information shocks from central bank communication.
Theme II investigates the issue of monetary communication and expectations management.
Theme III examines the complex interaction between monetary policy and uncertainty; monetary policy both reacts to shocks to the economy, but it is also a source of policy uncertainty.

The Research

McMahon (2025) summarises my the grant and presented at the Reserve Bank of Australia’s Annual Research Conference:

Lessons for monetary policy communication

I hosted a workshop on the grant's topics - the programme is here.

Theme I: Monetary Policy Effects and Communication

Project I.1: Financial and Macroeconomic Effects

I.1.1: Ahrens & McMahon (2021) examine how multiple central bank voices affect signal clarity.
- Published paper here: https://aclanthology.org/2021.econlp-1.12/
I.1.2: Ahrens et al. (2025) use supervised multimodal NLP to study market responses to Fed speeches.
- Published paper here: https://www.sciencedirect.com/science/article/pii/S0304407624002720
I.1.3 (WiP): McMahon & Munday (2022) analyse how communication and monetary shocks influence expectations.

Project I.2: Measuring Communication Influence

I.2.1 (submitted): Byrne et al. (2022) show markets respond to backward-looking information in communication.
- Discussion paper here: https://cepr.org/publications/dp17930
I.2.2 (submitted): Byrne et al. (2023) develop a method (available on GitHub) to quantify the temporal dimension of text.
- Discussion paper is here: https://cepr.org/publications/dp17931
I.2.3 (submitted): Cieslak et al. (2024) analyse Fed communication post-2020.
- The original Brookings paper is here: https://www.brookings.edu/wp-content/uploads/2024/05/Cieslak-McMahon-Pang-_conference-draft.pdf
- The updated academic paper version is here: https://cepr.org/publications/dp19360
I.2.4: Holly et al. (2024, eds.) reflect on 25 years of MPC. Includes chapter by Macaluso & McMahon on communication evolution.
- The book is available here: https://www.cambridge.org/core/books/reflections-on-monetary-policy-after-25-years-of-the-mpc/4A719F1E70EB764D0A65A7CA2A0B9F92
- Chapter is here: https://cepr.org/publications/dp17929
I.2.5: Istrefi & McMahon (2024) review how central bank communication shapes inflation expectations.
- Link to Book: https://www.e-elgar.com/shop/gbp/research-handbook-on-inflation-9781035327751.html?srsltid=AfmBOorTBViqgUv_Ej5cDzMg9U4nlrE_F3UnFuQfKsATeD9tXHmChkfv

Theme II: Expectations and Public Engagement

Project II.1: Coordinating Economic Expectations

II.1.1 (WiP): McMahon, Rholes & Rickards (2024) show targeted education improves understanding.
- Link to slides: https://mcmahonecon.com/wp-content/uploads/McMahon_BCN_Slides.pdf
- Link to video of treatment: https://mcmahonecon.com/teach-dont-give
II.1.2 (WiP): Drinkall et al. (2024) find the public struggles to link FOMC statements to interest rate outcomes.
II.1.3: McMahon & Reiche (2025) explore gender differences in inflation attitudes and responses.
- Paper is here: https://www.cambridge.org/core/journals/national-institute-economic-review/article/does-the-bank-of-england-need-gendered-communication/EB59F3B053A96604984582BE7C7A09D3

Project II.2: Trade Repository Data

II.2.1 (WiP): Jean-Guillaume Magre and I have a proposal to use EMIR trade respository data to disentangle uncertainty and disagreement. Unfortunately getting access to such data is difficult without a permanent central bank affiliation and so little progress was made during the grant. But we still think it is a good idea once we gain usable access to the data.

Project II.3: Communication with the General Public

II.3.1: Haldane, Macaulay & McMahon (2021) show simplifying language improves engagement and precision, but shocks that reveal past forecasts as wrong reduce trust. We summarise the challenges of engaging with the wider public as the 3Es: Explanation, Engagement, Education.
- The paper is here: https://cepr.org/publications/dp14265
II.3.2: Joseph, Lam & McMahon (2021) show how citizen panels help improve forecasting.
- The article is available here: https://www.bankofengland.co.uk/quarterly-bulletin/2021/2021-q4/the-public-economist-learning-from-our-citizens-panels-about-the-uk-economy
II.3.3 (submitted): McMahon & Naylor (2023) find managing technical complexity boosts understanding and trust.
- Discussion paper is here: https://cepr.org/publications/dp18537
II.3.4 (submitted): McMahon & Rholes (2023) show that forecast credibility depends on timing and performance of past predictions.
- Discussion paper is here: https://cepr.org/publications/dp18660

Theme III: Uncertainty and Monetary Policy

Project III.1: Uncertainty’s Role in Policymaking

III.1.1 (submitted): Cieslak et al. (2023) show inflation uncertainty prompts hawkish Fed responses.
- Discussion paper is here: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3936999
- Website with data is here: https://www.feduncertainty.com/
III.1.2 (submitted): Cieslak & McMahon (2024) show alternative-policy scenarios affect risk premia.
- Discussion paper is here: https://papers.ssrn.com/sol3/papers.cfm?abstract_id=4560220
III.1.3 (WiP): McMahon & Munday (2024) call for deeper integration of uncertainty sources in monetary policy models.

A new set of projects that developed out of the above themes relating to Fiscal and Narrative Analysis

Project IV.1: Fiscal Sustainability and Yields

IV.1.1 (WiP): McMahon & Willems (2024) examine how fiscal policy and credit ratings impact yields.

Project IV.2: Measuring Narrative in Text

IV.2.1: George et al. (2024) explore psycho-linguistic features in conspiracy detection.
- Paper is here: https://www.phon.ox.ac.uk/jpierrehumbert/publications/GeorgeetalMISDOOM2024.pdf
IV.2.2 (WiP): Ahrens et al. (2024) develop Ecofinbench, an NLP benchmark for economics/finance.
- Slides from recent ECONDAT conference are here: https://mcmahonecon.com/wp-content/uploads/McMahon_BCN_Slides.pdf
IV.2.3: Drinkall et al. (2025) link semantic shifts in narratives to market movements and partisanship.
- Paper is here: https://arxiv.org/pdf/2502.14497