THE CENTRAL BANK’S COMMUNICATION WITH THE MARKET AND STABILISATION OF INFLATION EXPECTATIONS

Abstract

The paper focuses on the central bank’s optimal communication with the market participants, and analyses the impact of the disclosure of the central bank’s intentions on the expectations of the economic agents. The stabilisation of inflation expectations is the main task of the monetary authorities. The main purpose of the paper is to analyse the relationship between the central bank forecasts and expectations. The text is organised as follows: section II describes the ways in which central banks signal their future policy actions. The inflation forecasts as tools influencing the expectations are described in section III. Section IV, in turn, provides an overview of the theoretical and empirical research on inflation forecasts, expectations and other economic variables. The paper also contains the description of pros and cons of publishing the policy path. The analysis of the research together with practical aspects does not lead to any explicit conclusions on the interdependences of inflation forecasts and expectations. The influence of the central bank forecasts is diverse and varies over time. However, central banks include a forecast disclosure in their communication strategy because of its potential advantages.