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MONETARY POLICY AND BEHAVIOURAL FINANCE
Author(s) -
Cuthbertson K.,
Nitzsche D.,
Hyde S.
Publication year - 2007
Publication title -
journal of economic surveys
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.657
H-Index - 92
eISSN - 1467-6419
pISSN - 0950-0804
DOI - 10.1111/j.1467-6419.2007.00525.x
Subject(s) - economics , monetary policy , mechanism (biology) , asset (computer security) , rational expectations , monetary transmission mechanism , mainstream , robustness (evolution) , macroeconomics , credit channel , inflation targeting , philosophy , biochemistry , chemistry , computer security , theology , epistemology , computer science , gene
There have been major advances in both theory and econometric techniques in mainstream macro‐models and parallel advances in knowledge of the monetary transmission mechanism acting via asset prices. At the same time, behavioural finance has provided evidence that not all actors in the economy are ‘fully rational’ and this has influenced models of asset pricing on which part of the monetary policy transmission mechanism depends. Such uncertainty about the behaviour of asset prices has in part stimulated a move towards ‘robustness’, as an important criterion for guiding monetary policy. We argue that although we have discovered much, including ‘what not to do’, nevertheless our knowledge of the transmission mechanism is very incomplete. This is because, in spite of all the theoretical advances that have been made, there is still considerable uncertainty over the behaviour of agents, which has been reinforced by insights from behavioural finance.