Monetary policy and the management of uncertainty: a narrative approach

David Tuckett (), Douglas Holmes (), Alice Pearson () and Graeme Chaplin ()
Additional contact information
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, Postal: Bank of England, Threadneedle Street, London, EC2R 8AH

No 870, Bank of England working papers from 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.

Keywords: Monetary policy; narrative theory; uncertainty; inflation-targeting; central bank communication; macroeconomic theory; economic knowledge (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2020-06-05
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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Persistent link: https://EconPapers.repec.org/RePEc:boe:boeewp:0870

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