Central Bank Communication and Expectations Stabilization
The value of communication is analyzed in a model in which agents' expectations need not be consistent with central bank policy. Without communication, the Taylor principle is not sufficient for macroeconomic stability: divergent learning dynamics are possible. Three communication strategies are contemplated to ensure consistency between private forecasts and monetary policy strategy: communicating the precise details of policy; communicating only the variables on which policy decisions are conditioned; and communicating the inflation target. The former strategies restore the Taylor principle as a sufficient condition for anchoring expectations. The latter strategy, in general, fails to protect against expectations-driven fluctuations. (JEL E32, E43, E52, E58)
Volume (Year): 2 (2010)
Issue (Month): 3 (July)
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- Stefano Eusepi & Bruce Preston, 2010.
"Central Bank Communication and Expectations Stabilization,"
American Economic Journal: Macroeconomics,
American Economic Association, vol. 2(3), pages 235-71, July.
- Eusepi, Stefano & Preston, Bruce, 2007. "Central bank communication and expectations stabilization," Proceedings, Federal Reserve Bank of San Francisco, issue March, pages 1-43.
- Stefano Eusepi & Bruce Preston, 2007. "Central Bank Communication and Expectations Stabilization," Discussion Papers 0708-10, Columbia University, Department of Economics.
- Stefano Eusepi & Bruce Preston, 2007. "Central Bank Communication and Expectations Stabilization," NBER Working Papers 13259, National Bureau of Economic Research, Inc.
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2003-18, Federal Reserve Bank of Atlanta.
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- Alan S. Blinder, 1999. "Central Banking in Theory and Practice," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522608, June.
- Stefano Eusepi & Bruce Preston, 2008.
"Stabilizing expectations under monetary and fiscal policy coordination,"
343, Federal Reserve Bank of New York.
- Stefano Eusepi & Bruce Preston, 2008. "Stabilizing Expectations under Monetary and Fiscal Policy Coordination," NBER Working Papers 14391, National Bureau of Economic Research, Inc.
- Ferrero, Giuseppe, 2007. "Monetary policy, learning and the speed of convergence," Journal of Economic Dynamics and Control, Elsevier, vol. 31(9), pages 3006-3041, September.
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NBER Working Papers
14181, National Bureau of Economic Research, Inc.
- Stefano Eusepi & Bruce Preston, 2011. "Expectations, Learning, and Business Cycle Fluctuations," American Economic Review, American Economic Association, vol. 101(6), pages 2844-72, October.
- Stefano Eusepi & Bruce Preston, 2008. "Expectations, Learning And Business Cycle Fluctuations," CAMA Working Papers 2008-20, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
- Mauro Roca, 2010. "Transparency and Monetary Policy with Imperfect Common Knowledge," IMF Working Papers 10/91, International Monetary Fund.
- Preston, Bruce, 2006. "Adaptive learning, forecast-based instrument rules and monetary policy," Journal of Monetary Economics, Elsevier, vol. 53(3), pages 507-535, April.
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