BGA | BUSINESS IMPACT
‘Classes in marketing can teach future central bankers and consultants how to design messages that are palatable to ordinary households’
approach of Business Schools can allow future leaders to draw on insights across many different fields, such as psychology, behavioural economics and macroeconomics as well as marketing, to design policies that not only work in theory, but also reach ordinary households in practice through identifying modes of communication and message design that normal people care about. Steps ahead The crux of that matter is that ordinary people are the ones who ultimately determine the effectiveness of monetary policy actions through their consumption, saving, and borrowing choices – which makes them the most important players in this game. Central banks need to start recognising that fact and adopt communication methods that work for ordinary people – whether this entails advertising on popular streaming platforms or getting creative with social media. The Bank of Jamaica, which has commissioned reggae songs that communicate inflation, provides one example of an attempt to use alternative methods to reach a wider audience. Perhaps central banks around the world could take a leaf out of its book. Academics are helping central banks along this journey with crucial research, but Business Schools have an important role to play too. By educating our future economic leaders about the importance of effective communication between policymakers and the public, and equipping them with the skills to achieve that, we can ensure that the central banks of tomorrow don’t risk losing their grip on inflation.
the extent and modes of communication with consumers. And yet, there’s still a long way to go. Most people remain ill-informed about the general pillars of policymaking – they do not actively attempt to obtain this information, and their expectations about policy-related variables tend to be biased and vary widely. And, yet, a growing body of work also shows that to the extent central banks can pierce the veil of ignorance, policy communication with ordinary households can become a powerful tool to steer aggregate demand. More must be done to understand exactly which style, which sender, and which type of messages might increase policymakers’ ability to reach consumers. Moreover, all these features might differ systematically across countries, demographic groups, and over time. Future policymakers and advisors must be aware that the most carefully crafted message and policy is bound to fail if members of the wider public are not reached, do not understand the implications for the optimal consumption- saving decisions, or simply do not care. How can Business Schools help? Inflation expectations determine virtually all the forward-looking decisions
undertaken by households, including savings and consumption decisions, wage bargaining, labour supply, portfolio choice and more. Many Business Schools, like the University of Chicago Booth School of Business (Chicago Booth), already teach students how to adjust their decisions with inflation expectations. Not only that, but students also learn what inflation is, how it’s measured, how to form their own expectations and from there, how to make wise financial and monetary decisions. In macroeconomics classes, students can also learn how central banks formulate their policies and how they manage and control inflation. So, at Chicago Booth – and many Business Schools across the world – students walk away from these classes with an advanced knowledge of what inflation decisions by central banks really mean. But the same can’t be said for society as a whole. The missing link today is finding ways for central banks to reach households with their policies and communications. One way Business Schools can help is through classes in marketing which can teach future central bankers and consultants how to design simple messages that are palatable to ordinary households and identify the right channels through which to communicate these messages. At the same time, the interdisciplinary
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Michael Weber is an Associate Professor of Finance at The University of Chicago Booth School of Business.
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