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Managing expectations

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  • Yang K. Lu

    (Boston University)

  • Ernesto Pasten

    (Boston University)

  • Robert G. King

    (Boston University)

Abstract

The idea that monetary policy is principally about "managing expectations" has taken hold in central banks around the world. Discussions of expectations management by central bankers, academics and by financial market participants frequently also include the idea that central bank credibility is imperfect. We adapt a familiar macroeconomic model so as to discuss key concepts in the area of expectations management. Our work also exemplifies a model construction approach to analyzing the dynamics of announcements, actions, and credibility that we think makes feasible a wide range of future investigations concerning the management of expectations. Copyright (c) 2008 The Ohio State University.

(This abstract was borrowed from another version of this item.)

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Bibliographic Info

Paper provided by Society for Economic Dynamics in its series 2008 Meeting Papers with number 959.

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Date of creation: 2008
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Handle: RePEc:red:sed008:959

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Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
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  1. Barro, Robert J., 1986. "Reputation in a model of monetary policy with incomplete information," Journal of Monetary Economics, Elsevier, Elsevier, vol. 17(1), pages 3-20, January.
  2. Maskin, Eric & Tirole, Jean, 2001. "Markov Perfect Equilibrium: I. Observable Actions," Journal of Economic Theory, Elsevier, Elsevier, vol. 100(2), pages 191-219, October.
  3. Kydland, Finn E & Prescott, Edward C, 1977. "Rules Rather Than Discretion: The Inconsistency of Optimal Plans," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 85(3), pages 473-91, June.
  4. Fudenberg, Drew & Tirole, Jean, 1991. "Perfect Bayesian equilibrium and sequential equilibrium," Journal of Economic Theory, Elsevier, Elsevier, vol. 53(2), pages 236-260, April.
  5. Lucas, Robert E, Jr, 1973. "Some International Evidence on Output-Inflation Tradeoffs," American Economic Review, American Economic Association, American Economic Association, vol. 63(3), pages 326-34, June.
  6. Martin J. Osborne & Ariel Rubinstein, 1994. "A Course in Game Theory," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262650401, December.
  7. David M Kreps & Robert Wilson, 2003. "Sequential Equilibria," Levine's Working Paper Archive 618897000000000813, David K. Levine.
  8. Stein, Jeremy C, 1989. "Cheap Talk and the Fed: A Theory of Imprecise Policy Announcements," American Economic Review, American Economic Association, American Economic Association, vol. 79(1), pages 32-42, March.
  9. Bennett T. McCallum, 1981. "On Non-Uniqueness in Rational Expectations Models: An Attempt at Perspective," NBER Working Papers 0684, National Bureau of Economic Research, Inc.
  10. Elmar Mertens, 2008. "Managing Beliefs about Monetary Policy under Discretion?," Working Papers, Swiss National Bank, Study Center Gerzensee 08.02, Swiss National Bank, Study Center Gerzensee.
  11. Cukierman, Alex & Liviatan, Nissan, 1991. "Optimal accommodation by strong policymakers under incomplete information," Journal of Monetary Economics, Elsevier, Elsevier, vol. 27(1), pages 99-127, February.
  12. Fischer, Stanley, 1977. "Long-Term Contracts, Rational Expectations, and the Optimal Money Supply Rule," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 85(1), pages 191-205, February.
  13. Backus, David & Driffill, John, 1985. "Rational Expectations and Policy Credibility Following a Change in Regime," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 52(2), pages 211-21, April.
  14. Robert G. King & Yang K. Lu & Ernesto S. Pastén, 2008. "Managing Expectations," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 40(8), pages 1625-1666, December.
  15. Carl E. Walsh, 2003. "Monetary Theory and Policy, 2nd Edition," MIT Press Books, The MIT Press, The MIT Press, edition 2, volume 1, number 0262232316, December.
  16. Phelan, Christopher, 2006. "Public trust and government betrayal," Journal of Economic Theory, Elsevier, Elsevier, vol. 130(1), pages 27-43, September.
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Cited by:
  1. Elmar Mertens, 2010. "Discreet Commitments and Discretion of Policymakers with Private Information," 2010 Meeting Papers, Society for Economic Dynamics 763, Society for Economic Dynamics.
  2. Paul Hubert, 2010. "Monetary Policy, Imperfect Information and the Expectations Channel," Sciences Po publications, Sciences Po info:hdl:2441/f4rshpf3v1u, Sciences Po.
  3. Robert King & Yang Lu & Ernesto Pastén, 2014. "Policy Design with Private Sector Skepticism in the Textbook New Keynesian Model," Working Papers Central Bank of Chile, Central Bank of Chile 717, Central Bank of Chile.
  4. Lu, Yang K., 2013. "Optimal policy with credibility concerns," Journal of Economic Theory, Elsevier, Elsevier, vol. 148(5), pages 2007-2032.
  5. Man-Keung Tang & Xiangrong Yu, 2011. "Communication of Central Bank Thinking and Inflation Dynamics," IMF Working Papers, International Monetary Fund 11/209, International Monetary Fund.
  6. repec:spo:wpecon:info:hdl:2441/f4rshpf3v1umfa09lat09b1bg is not listed on IDEAS
  7. Robert G. King & Yang K. Lu & Ernesto S. Pastén, 2008. "Managing Expectations," Journal of Money, Credit and Banking, Blackwell Publishing, Blackwell Publishing, vol. 40(8), pages 1625-1666, December.
  8. Bodenstein, Martin & Hebden, James & Nunes, Ricardo, 2012. "Imperfect credibility and the zero lower bound," Journal of Monetary Economics, Elsevier, Elsevier, vol. 59(2), pages 135-149.

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