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Chair of the Department of Micro- and Macroeconomic Analysis of the Economics Faculty, Lomonosov Moscow State University
The rational expectations hypothesis was the gold standard in macroeconomics for many years. It assumes that people take a realistic view of the future. In fact, people often attach too much importance to short-term trends, which may directly impact a central bank’s policy.
The more clearly businesses and households understand the central bank's policy, the closer their inflation expectations are to the target. However, it is possible for monetary policy to be excessively transparent, which can bring more harm than benefit.
Inflation targeting might support economic growth by lowering inflation and volatility. However, monetary policy alone cannot drive growth.
