Monetary policy and behavioural economics

Anna Breman and Björn Lagerwall of Riksbank explore how behavioral economics can help improve monetary policy:

This Economic Commentary aims to provide some ideas on how empirical research from behavioural economics could help explain economic developments in recent years, particularly in relation to the large increase in inflation. We also discuss why it may be important to consider this research to improve future analysis when designing monetary policy. The first part of the Commentary describes some of the key findings from behavioural economics research. In this context, we will also discuss insights from social psychology that are important to consider in the context of group decision-making. The second part describes a simple monetary policy framework. The third part focuses on the inflation shock in 2021 and 2022 and its consequences going forward. We end the Commentary with some concluding thoughts.