The Role of Expectations in Monetary Policy
17 Pages Posted: 3 Oct 2006
Date Written: September 29, 2006
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: Suggested Citation