Monetary policy and behavioural economics
Economic Commentaries, News Do households think about interest rates and wages in real or nominal terms when making financial decisions? Does 'mental accounting' affect households' willingness to buy different types of goods and services at different times? How can monetary policy decision-making processes be affected by various social psychological factors such as groupthink?
In the Economic Commentary "Monetary policy and behavioural economics", First Deputy Governor Anna Breman and Björn Lagerwall, Senior Adviser in the Monetary Policy Department, discuss how psychological factors can play an important role in understanding both macroeconomic relationships and monetary policy decision-making.
The high inflation and changing consumption patterns of recent years have been difficult to capture in the models and analyses normally used by central banks. However, the authors argue that insights from behavioural economics provide a better understanding of developments and can serve as a useful complement to standard macroeconomic models to improve monetary policy analysis and decision-making.
Authors: First Deputy Governor Anna Breman and Björn Lagerwall, Senior Adviser in the Monetary Policy Department.
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