Managing Expectations


  • Prepared for the Universitat Berne–Swiss National Bank–Journal of Money, Credit, and Banking Conference honoring Ernst Baltensperger, June 8, 2007. We thank Huberto Ennis for many valuable conversations about this topic. We also thank Matthew Canzoneri, Harris Dellas, Andreas Fischer, Bart Lipman, Antonio Miralles, Leo Martinez, Pierre Sarte, and Alex Wolman for useful comments and/or discussions. This research has benefitted from presentations at Boston University, the Federal Reserve Bank of Richmond, and the UNIBE/SNB/JMCB Conference.


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.