How can the central bank communicate to reduce public expectations of differences?—Theoretical explanation and empirical evidence based on social learning

LIN Mingyu

Systems Engineering - Theory & Practice ›› 2025, Vol. 45 ›› Issue (1) : 73-92.

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Systems Engineering - Theory & Practice ›› 2025, Vol. 45 ›› Issue (1) : 73-92. DOI: 10.12011/SETP2023-1109

How can the central bank communicate to reduce public expectations of differences?—Theoretical explanation and empirical evidence based on social learning

  • LIN Mingyu
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Abstract

This article uses the idea of genetic algorithm to construct a new Keynesian model with social learning behavior, and explores the mechanism of the impact of central bank communication on the expected heterogeneity of economic entities. The study found that pessimistic shocks can lead to a sudden increase in the divergence of economic entity expectations. At this time, central bank communication can effectively reduce the expected divergence of economic entities through social learning channels; Pessimistic shocks can also reduce the credibility of the central bank. At this point, by improving the accuracy of information disclosure, the central bank can slowly repair its credibility and guide the expectations of economic entities; Under the pessimistic impact, although central bank communication can effectively reduce social welfare losses, it cannot fully offset the inherent welfare costs of heterogeneous expectations. Further empirical testing has found that the central bank's more relaxed and consistent words and actions, as well as the stronger learning ability of economic entities, can reduce divergence in inflation expectations. This article verifies the role of communication between the People's Bank of China in expectation management from both theoretical and empirical perspectives, providing valuable reference for the central bank's "stabilizing expectations" work.

Key words

central bank communication / social learning / expectation management / genetic algorithm

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LIN Mingyu. How can the central bank communicate to reduce public expectations of differences?—Theoretical explanation and empirical evidence based on social learning. Systems Engineering - Theory & Practice, 2025, 45(1): 73-92 https://doi.org/10.12011/SETP2023-1109

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