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The emerging role of expectations in conducting and coordonating monetary policy

Author

Listed:
  • Marius HERBEI

    (West University of Timisoara)

  • Florin DUMITER

    (West University Vasile Goldis of Arad)

Abstract

Expectations play a key role in the economic theories that underpin most macroeconomic models. Planning for the future is a central part of economic life. The need to make decisions about the type of car to buy, the amount of education to pursue, and the fraction of income to save forces households to think about which choices make the most sense not just for today, but for years into the future. Similarly, businesses firms, in deciding where to locate factories and offices, what equipment to install, and what products to develop and produce, make decisions with the consequences that may last many years. Individuals must make inform guesses about circumstances in the years ahead and then base decisions on these expectations. In the context of constructing financial credibility through an independent central bank and transparency strategies, the central bank must take into account some important features like: elaborate and develop policy responses to the rational expectations of the market actors, taming financial market volatility and structuring financial markets outcomes to favor the governments that implement them, construct and develop ideological and intersubjective strategies, with cognitive and ideational constitutive effects.

Suggested Citation

  • Marius HERBEI & Florin DUMITER, 2010. "The emerging role of expectations in conducting and coordonating monetary policy," Finante - provocarile viitorului (Finance - Challenges of the Future), University of Craiova, Faculty of Economics and Business Administration, vol. 1(11), pages 196-203, May.
  • Handle: RePEc:aio:fpvfcf:v:1:y:2010:i:11:p:196-203
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    Keywords

    monetary policy; theory of expectations; rational expectations;

    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
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects

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