In recent years, central banks have dramatically increased the amount of communication with market participants and...

In recent years, central banks have dramatically increased the amount of communication with market participants and the public, and at the same time in many of these countries, average inflation has declined and become less volatile. Is this coincidence, or is there a connection? Explain

Expert Solution

It is not a coincidence. There is a strong macroeconomic connection that is working behind the curtains to achieve the policy goals.

It is the Credibility of the Monetary Policy that is working behind that has anchored the inflation expectations well. The greater amount of Communication with market participants and public will successfully increased the transparency and credibility of the monetary policy decisions. Such credibility has given a boost to consumers' and investors' confidence towards the future outlook. They are now able to anticipate future prices well and make their investment decisions with less fear of incurring a loss in the future.

Hence, it can be concluded that with such greater information flow, the Central bank is able to create its credibility among the nation's residents and the direct results of it is shown in the lower amount of inflation and nominal, price stability

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Rahul Sunny answered 2 years ago

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