The Role of Expectations in Monetary Policy

17 Pages Posted: 3 Oct 2006

Date Written: September 29, 2006

Abstract

Recent literature on monetary policy has emphasised the role of expectations and the merits of tying them down through credible commitment. However, although always in favour of reaping the benefits of having committed, Central Banks worry about the fact that in real time, it is not always easy to assume that they are in such a position. Decisions need to be taken then, under the assumption of predetermined expectations. We argue that in these circumstances, the provision of clear inflation objectives helps agents understand Central Bank objectives better and is thus beneficial to all.

Keywords: expectations, information games, inflation targets

JEL Classification: C70, C78, E58

Suggested Citation

Demertzis, Maria, The Role of Expectations in Monetary Policy (September 29, 2006). Available at SSRN: https://ssrn.com/abstract=934501 or http://dx.doi.org/10.2139/ssrn.934501

Maria Demertzis (Contact Author)

Bruegel ( email )

Rue de la Charité 33
B-1210 Brussels Belgium, 1210
Belgium

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