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Monetary policy and the management of uncertainty: a narrative approach

Author

Listed:
  • David Tuckett

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

  • Douglas Holmes

    (Binghamton University)

  • Alice Pearson

    (University of Cambridge)

  • Graeme Chaplin

    (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

  • David Tuckett & Douglas Holmes & Alice Pearson & Graeme Chaplin, 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
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    Cited by:

    1. Rickard Nyman & Sujit Kapadia & David Tuckett & David Gregory & Paul Ormerod & Robert Smith, 2018. "News and narratives in financial systems: exploiting big data for systemic risk assessment," Bank of England working papers 704, Bank of England.
    2. Barkhausen David & Teupe Sebastian, 2025. "The German Inflation Trauma: Weimar’s Policy Lessons Between Persistence and Reconstruction," Journal of Economics and Statistics (Jahrbuecher fuer Nationaloekonomie und Statistik), De Gruyter, vol. 245(3), pages 269-332.
    3. 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).
    4. Łukasz Baszczak, 2023. "Ekonomia narracji – początki nowego nurtu," Gospodarka Narodowa. The Polish Journal of Economics, Warsaw School of Economics, issue 1, pages 66-81.
    5. Beckert, Jens & Arndt, H. Lukas R., 2024. "The Greek tragedy: Narratives and imagined futures in the Greek sovereign debt crisis," MPIfG Discussion Paper 24/4, Max Planck Institute for the Study of Societies.
    6. 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.
    7. Ying, Shan & Sheen, Jeffrey & Gu, Xin & Wang, Ben Zhe, 2025. "Does monetary policy uncertainty moderate the transmission of policy shocks to government bond yields?," Journal of International Money and Finance, Elsevier, vol. 154(C).
    8. 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).
    9. 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.

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    More about this item

    Keywords

    Monetary policy; narrative theory; uncertainty; inflation-targeting; central bank communication; mac;
    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

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