Communication and inflation expectations

Klodiana Istrefi and Michael McMahon

Chapter 16 in Research Handbook on Inflation, 2025, pp 358-376 from Edward Elgar Publishing

Abstract: A major focus of monetary policymakers is the management of inflation expectations. In our theoretical models of monetary policy, anchoring inflation expectations gives rise to more stable inflation. Many of the design features of monetary frameworks in use today enable policymakers to anchor inflation expectations. The relatively recent increase in focus on central bank communication is one of these features. The key questions we address in this chapter are: Does central bank communication affect inflation expectations? If so, how? We describe the broad changes in the practice of central bank communication about monetary policy, highlighting that the transparency norm of today is a relatively recent phenomenon. We then explore the role of communication in core theoretical models such as the New Keynesian model, as well as models in which informational issues and communication are more explicitly modelled, and consider the empirical evidence on the effects of communication on inflation expectations. We conclude with a discussion of the ongoing challenges facing policymakers in communicating effectively.

Keywords: Inflation; Expectations; Monetary policy; Central banks; Communication (search for similar items in EconPapers)
Date: 2025
ISBN: 9781035327751
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