 Expectations and the Central Banker: Making Decisions the Market Expects to See?Edward Kutsoati and Sharun W. Mukand International Economic Journal, 2023, vol. 37, issue 1, 17-38 Abstract: This paper develops a simple model to examine conditions under which a monetary policy-making authority is tempted to ‘follow the market’. In doing so, we explore the implications of increased market consensus on the practice of monetary policy and show that inefficiency in policymaking is most likely precisely when there is a very high consensus that economic fundamentals are weak or strong. In addition, our results also shed light on (i) why interest rates may not be high enough even when the central bank's information suggests a rise in asset prices may be due to a ‘bubble’ shock; (ii) why a central banker may be reluctant to adopt a loose monetary policy even when investors seem to be very pessimistic about the path of future output; and (iii) why, contrary to conventional models, we sometimes observe an upward revision of private sector‘s forecasts of inflation when the central bank tightens its monetary policy. The results have implications for the transparency of monetary policy. Date: 2023 Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:taf:intecj:v:37:y:2023:i:1:p:17-38 Ordering information: This journal article can be ordered from DOI: 10.1080/10168737.2022.2153901 Access Statistics for this article International Economic Journal is currently edited by Jaymin Lee Editor More articles in International Economic Journal from Taylor & Francis Journals |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.