Monetary Policy and the Management of Uncertainty: A Narrative Approach

30 Pages Posted: 18 Jun 2020

See all articles by Bank of England Publications

Bank of England Publications

Bank of England

David Tuckett

University College London - Centre for the Study of Decision-Making Uncertainty

Douglas Holmes

affiliation not provided to SSRN

Alice Pearson

University of Cambridge

Graeme Chaplin

affiliation not provided to SSRN

Date Written: June 5, 2020

Abstract

In this paper we explore how macroeconomic theory might be augmented, and the practice of monetary policy better understood, if approached through ideas from social and psychological science. A modern, inflation-targeting central bank faces ‘radical’ uncertainty both in understanding the economy and in knowing how best to communicate policy decisions to influence behaviour. We make use of narrative theory to explore these challenges, drawing on fieldwork with the Bank’s regional Agencies and conversations with staff and policy-makers. We find that the intelligence gathered from conversations with businesses is uniquely useful for both the analysis and communication of monetary policy. Such intelligence embodies knowledge about the plans which are making the future. It also provides insights into how economic agents understand the economy they are creating. These insights can help the Monetary Policy Committee to communicate its policy as a narrative the public understands and commits to. We propose further research to advance and test these ideas.

Keywords: Monetary policy, narrative theory, uncertainty, inflation-targeting, central bank communication, macroeconomic theory, economic knowledge

JEL Classification: E52, E58

Suggested Citation

Publications, Bank of England and Tuckett, David and Holmes, Douglas and Pearson, Alice and Chaplin, Graeme, Monetary Policy and the Management of Uncertainty: A Narrative Approach (June 5, 2020). Bank of England Working Paper No. 870, Available at SSRN: https://ssrn.com/abstract=3627721 or http://dx.doi.org/10.2139/ssrn.3627721

Bank of England Publications (Contact Author)

Bank of England

Threadneedle Street
London, EC2R 8AH
United Kingdom

David Tuckett

University College London - Centre for the Study of Decision-Making Uncertainty ( email )

Gower Street
London, WC1 6BT
United Kingdom

HOME PAGE: http://www.ucl.ac.uk/psychoanalysis/unit-staff/david.htm

Douglas Holmes

affiliation not provided to SSRN

Alice Pearson

University of Cambridge ( email )

Trinity Ln
Cambridge, CB2 1TN
United Kingdom

Graeme Chaplin

affiliation not provided to SSRN

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