Monetary Policy and Boom-Bust Cycles: The Role of Central Bank Communication
Can central bank communication act as a complementary instrument when policymakers are facing boom-bust cycles? Against the background of the current discussion about introducing an additional instrument when dealing with asset price misalignments, we argue that one of the core instruments of monetary policy should be considered: central bank communication. In a stylised model, communicating the future path of policy can change the trade-off between the proactive policy of curbing asset price inflation and the reactive policy of loosening monetary policy conditions during the boom phase. We show that the additional use of communication supports the proactive strategy.
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Volume (Year): 13-14 (2010-2011)
Issue (Month): 2-1 (Winter-Summer)
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