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Journal of money, credit and banking, 2010-03, Vol.42 (2-3), p.373-397
Ort / Verlag
Malden, USA: Blackwell Publishing Inc
Erscheinungsjahr
2010
Link zum Volltext
Quelle
Wiley Online Library Journals Frontfile Complete
Beschreibungen/Notizen
Central bank communication plays an important role in shaping market participants' expectations. This paper studies a simple nonlinear model of monetary policy where agents have incomplete information about the economic environment. It shows that agents' learning and the dynamics of the economy are heavily affected by central bank's transparency about its policy rule. A monetary authority that does not communicate its rule can induce "learning equilibria" where the economy experiences prolonged periods of deflation and slow growth. More generally, small expectational errors can result in complex economic dynamics, inducing welfare-reducing fluctuations. On the contrary, central bank communication helps stabilizing expectations around the inflation target equilibrium.