Advanced announcements of monetary policy changes are desirable since
A)financial markets need a long time to interpret and react to policy announcements
B) monetary policy only has an effect on real output if people believe policy announcements
C)as long as policy announcements are consistently followed, the central bank's credibility is increased, creating more rational expectations
D)individuals tend to adjust their behavior following these announcements in a way that actually negates the need for any real policy action
E)none of the above

Question

Quizplus · Accepted Answer

Advanced announcements of monetary policy changes can help to enhance the credibility of the central bank as long as they are consistently followed. This, in turn, can lead to more rational expectations and a better understanding of how the central bank will react to changing economic conditions. Such clarity can help financial markets to interpret and react to policy announcements more easily, which can lead to a more effective monetary policy regime.

Advanced Announcements of Monetary Policy Changes Are Desirable Since