The emerging role of expectations in conducting and coordonating monetary policy

Marius Herbei and Florin Dumiter
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Marius Herbei: West University of Timisoara
Florin Dumiter: West University Vasile Goldis of Arad

Finante - provocarile viitorului (Finance - Challenges of the Future), 2010, vol. 1, issue 11, 196-203

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.

Keywords: monetary policy; theory of expectations; rational expectations (search for similar items in EconPapers)
JEL-codes: E43 E52 E58 (search for similar items in EconPapers)
Date: 2010
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