Monetary policy and behavioural economics

Summary

The high inflation and changing consumption patterns of recent years have been particularly difficult to capture with the models and analyses normally used by central banks. We explore whether insights from behavioural economics can help to better analyse economic developments in a changing environment. Psychological factors can play an important role in understanding both macroeconomic relationships and monetary policy decision-making. Behavioural economics has empirically identified how individuals make economic decisions and can be a valuable complement to monetary policy analysis.

Published: 10 April 2024

Authors: Anna Breman, First Deputy Governor, and Björn Lagerwall, Senior Advisor at the Monetary Policy Department.^[1] The authors would like to thank Mikael Apel, Hanna Armelius, Charlotta Edler, Daria Finocchiaro, Thomas Jansson, Caroline Jungner, Matilda Kilström, Åsa Olli Segendorf och Anders Vredin for their valuable comments, Charlie Nilsson for help with the figures and Gary Watson for his translation of the commentary into English.