Managing Expectations

The idea that monetary policy is principally about "managing expectations" has taken hold in central banks around the world. Discussions of expectations management by central bankers, academics and by financial market participants frequently also include the idea that central bank credibility is imperfect. We adapt a familiar macroeconomic model so as to discuss key concepts in the area of expectations management. Our work also exemplifies a model construction approach to analyzing the dynamics of announcements, actions, and credibility that we think makes feasible a wide range of future investigations concerning the management of expectations. Copyright (c) 2008 The Ohio State University.