The Real (Social) Experience of Monetary Policy

Abstract

This paper takes a socio-economic approach to considering money in relation to real experience, focusing on the real effects of monetary policy. While most of the economics literature focuses on interest-rate setting as the core tool of monetary policy, we focus here instead on signalling by the central bank as a mechanism for influencing expectations and behaviour in conditions of uncertainty. This involves addressing the social-conventional expectations among different groups (a mechanism for dealing with uncertainty) applied to their particular ways of framing the real and financial sectors. Actual credit conditions faced by borrowers in turn are the outcome of the conventional view among banks as a result of their framing and the influence of central bank signalling. These relations between central banks, banks and the non-bank public in turn normally rest on long-established relations of trust. We consider the real effects of monetary policy in circumstances where trust has broken down.