Recently, many central banks have begun communicating not just their current monetary policy, but also its probable predicted future path. However, the effectiveness of this communication hinges on how strongly it is able to influence the inflation expectations of households and firms. A standard property of macroeconomic models is that expectations respond very strongly to such announcements. A new theoretical study shows that the effects are much smaller in a model capable of matching survey evidence on expectations formation.

Bundesbank President Jens Weidmann welcomed ECB President Christine Lagarde at the Bundesbank. Weidmann showed Lagarde the money museum and the TARGET2 room.