IDEAS home Printed from https://ideas.repec.org/p/boe/boeewp/0870.html
   My bibliography  Save this paper

Monetary policy and the management of uncertainty: a narrative approach

Author

Listed:
  • Tuckett, David

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

  • Holmes, Douglas

    (Binghamton University)

  • Pearson, Alice

    (University of Cambridge)

  • Chaplin, Graeme

    (Bank of England)

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.

Suggested Citation

  • Tuckett, David & Holmes, Douglas & Pearson, Alice & Chaplin, Graeme, 2020. "Monetary policy and the management of uncertainty: a narrative approach," Bank of England working papers 870, Bank of England.
    • Handle: RePEc:boe:boeewp:0870
    as

    Download full text from publisher

    File URL: https://www.bankofengland.co.uk/-/media/boe/files/working-paper/2020/monetary-policy-and-the-management-of-uncertainty-a-narrative-approach.pdf
    File Function: Full text
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Alan S. Blinder & Michael Ehrmann & Marcel Fratzscher & Jakob De Haan & David-Jan Jansen, 2008. "Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence," Journal of Economic Literature, American Economic Association, vol. 46(4), pages 910-945, December.
    2. Donald Mackenzie & Fabian Muniesa & Lucia Siu, 2007. "Do Economists Make Markets? On the Performativity of Economics," Post-Print halshs-00149145, HAL.
    3. repec:pri:cepsud:161blinder is not listed on IDEAS
    4. Fabian Muniesa & Michel Callon, 2007. "Economic experiments and the construction of markets," Post-Print halshs-00177935, HAL.
    5. Leins, Stefan, 2018. "Stories of Capitalism," University of Chicago Press Economics Books, University of Chicago Press, number 9780226523392, Febrero.
    6. Horacio Ortiz, 2014. "The Limits of Financial Imagination: Free Investors, Efficient Markets, and Crisis," Post-Print hal-00966544, HAL.
    7. Thompson, Erica L. & Smith, Leonard A., 2019. "Escape from model-land," Economics Discussion Papers 2019-23, Kiel Institute for the World Economy (IfW Kiel).
    8. England, David & Hebden, Andrew & Henderson, Tom & Pattie, Tom, 2015. "The Agencies and 'One Bank'," Bank of England Quarterly Bulletin, Bank of England, vol. 55(1), pages 47-55.
    9. Michael Woodford, 2001. "Imperfect Common Knowledge and the Effects of Monetary Policy," NBER Working Papers 8673, National Bureau of Economic Research, Inc.
    10. Thompson, Erica L. & Smith, Leonard A., 2019. "Escape from model-land," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 13, pages 1-17.
    11. Alan S. Blinder & Michael Ehrmann & Marcel Fratzscher & Jakob De Haan & David-Jan Jansen, 2008. "Central Bank Communication and Monetary Policy: A Survey of Theory and Evidence," Journal of Economic Literature, American Economic Association, vol. 46(4), pages 910-945, December.
    12. Donald MacKenzie & Fabian Muniesa & Lucia Siu, 2007. "Introduction to Do Economists Make Markets? On the Performativity of Economics," Introductory Chapters, in: Donald MacKenzie & Fabian Muniesa & Lucia Siu (ed.),Do Economists Make Markets? On the Performativity of Economics, Princeton University Press.
    13. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, vol. 85(3), pages 473-491, June.
    14. David Tuckett, 2011. "Minding the Markets," Palgrave Macmillan Books, Palgrave Macmillan, number 978-0-230-30782-7.
    15. Leins, Stefan, 2018. "Stories of Capitalism," University of Chicago Press Economics Books, University of Chicago Press, number 9780226523422, September.
    16. Thompson, Erica L. & Smith, Leonard A., 2019. "Escape from model-land," LSE Research Online Documents on Economics 103310, London School of Economics and Political Science, LSE Library.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Nyman, Rickard & Kapadia, Sujit & Tuckett, David, 2021. "News and narratives in financial systems: Exploiting big data for systemic risk assessment," Journal of Economic Dynamics and Control, Elsevier, vol. 127(C).
    2. Müller, Henrik & Schmidt, Tobias & Rieger, Jonas & Hufnagel, Lena Marie & Hornig, Nico, 2022. "A German inflation narrative. How the media frame price dynamics: Results from a RollingLDA analysis," DoCMA Working Papers 9, TU Dortmund University, Dortmund Center for Data-based Media Analysis (DoCMA).
    3. Łukasz Baszczak, 2023. "Ekonomia narracji – początki nowego nurtu," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 1, pages 66-81.
    4. Timothy Betts & Patrice M. Buzzanell, 2022. "Enacting Economic Resilience: A Synthesis of Economic and Communication Frameworks," JRFM, MDPI, vol. 15(4), pages 1-18, April.
    5. Radu Șimandan & Cristian Valeriu Păun & Bogdan Glăvan, 2023. "Post-Pandemic Greenness? How Central Banks Use Narratives to Become Green," Sustainability, MDPI, vol. 15(2), pages 1-28, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dimitris Christelis & Dimitris Georgarakos & Tullio Jappelli & Maarten van Rooij, 2020. "Trust in the Central Bank and Inflation Expectations," International Journal of Central Banking, International Journal of Central Banking, vol. 16(6), pages 1-37, December.
    2. François-Xavier de Vaujany & Sabine Carton & Carine Dominguez-Perry & Emmanuelle Vaast, 2012. "Performativity and Information Technologies: An inter-organizational perspective," Post-Print halshs-00851315, HAL.
    3. Freddy H. CASTRO, 2012. "Senales de política monetaria y movimientos en la estructura a plazo de la tasa de interés en Colombia," Archivos de Economía 9908, Departamento Nacional de Planeación.
    4. Kristin Asdal & Béatrice Cointe, 2022. "Writing good economics: how texts 'on the move' perform the lab and discipline of experimental economics," Post-Print hal-03429169, HAL.
    5. Sorge, Marco M., 2013. "Robust delegation with uncertain monetary policy preferences," Economic Modelling, Elsevier, vol. 30(C), pages 73-78.
    6. Donato Masciandaro & Davide Romelli, 2019. "Behavioral Monetary Policymaking: Economics, Political Economy and Psychology," World Scientific Book Chapters, in: Behavioral Finance The Coming of Age, chapter 9, pages 285-329, World Scientific Publishing Co. Pte. Ltd..
    7. Paul Hubert & Becky Maule, 2016. "Policy and Macro Signals as Inputs to Inflation Expectation Formation," Working Papers hal-03459462, HAL.
    8. Sangha, Laljeet & Shortridge, Julie, 2023. "Quantification of unreported water use for supplemental crop irrigation in humid climates using publicly available agricultural data," Agricultural Water Management, Elsevier, vol. 287(C).
    9. Chris D'Souza & Jane Voll, 2021. "Qualitative Field Research in Monetary Policy Making," Discussion Papers 2021-1, Bank of Canada.
    10. Mélodie Cartel & Eva Boxenbaum & Franck Aggeri & Jean-Yves Caneill, 2017. "Policy making as collective bricolage: the role of the electricity sector in the making of the European carbon market," Post-Print hal-01615460, HAL.
    11. Trunin, Pavel (Трунин, Павел) & Bozhechkova, Alexandra (Божечкова, Александра) & Goryunov, Eugene (Горюнов, Евгений) & Petrova, Diana, 2017. "Analysis of Approaches to Accounting of the Information Effects of Monetary Policy [Анализ Подходов К Учету Информационных Эффектов Денежно-Кредитной Политики]," Working Papers 031723, Russian Presidential Academy of National Economy and Public Administration.
    12. Banzhaf, H. Spencer, 2016. "Constructing markets: environmental economics and the contingent valuation controversy," MPRA Paper 78814, University Library of Munich, Germany.
    13. Hubert Paul, 2017. "Qualitative and quantitative central bank communication and inflation expectations," The B.E. Journal of Macroeconomics, De Gruyter, vol. 17(1), pages 1-41, January.
    14. Ricardo Reis, 2013. "Central Bank Design," Journal of Economic Perspectives, American Economic Association, vol. 27(4), pages 17-44, Fall.
    15. Carl Walsh, 2015. "Goals and Rules in Central Bank Design," CESifo Working Paper Series 5293, CESifo.
    16. Zafar Hayat, 2017. "Pakistan’s Monetary Policy: Some Fundamental Issues," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 56(1), pages 31-58.
    17. Laure Cabantous & Jean-Pascal Gond, 2011. "Rational Decision Making as Performative Praxis: Explaining Rationality's Éternel Retour," Organization Science, INFORMS, vol. 22(3), pages 573-586, June.
    18. Jakob Haan & Christina Bodea & Raymond Hicks & Sylvester C. W. Eijffinger, 2018. "Central Bank Independence Before and After the Crisis," Comparative Economic Studies, Palgrave Macmillan;Association for Comparative Economic Studies, vol. 60(2), pages 183-202, June.
    19. Binder, Carola, 2017. "Fed speak on main street: Central bank communication and household expectations," Journal of Macroeconomics, Elsevier, vol. 52(C), pages 238-251.
    20. Han, Xun & Ma, Sichao & Peng, Yuchao & Xie, Xinyan, 2022. "Central bank communication, corporate maturity mismatch and innovation," International Review of Financial Analysis, Elsevier, vol. 84(C).

    More about this item

    Keywords

    Monetary policy; narrative theory; uncertainty; inflation-targeting; central bank communication; macroeconomic theory; economic knowledge;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:boe:boeewp:0870. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Digital Media Team (email available below). General contact details of provider: https://edirc.repec.org/data/boegvuk.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.