Shaping expectations is important, though,
difficult by the way of targeting variables... It is really an irony that if we
target a variable and try to carve expectations it works in the opposite
direction... For example, if we target inflation and shape inflation
expectations it takes us in the opposite direction, deflation... because
inflation would make things costly which means less purchasing power and
spending, moreover it increases savings because of higher future
inflation-expectations, people would demand less and save more... Nonetheless,
if we could try to target lower-prices or inflation people would spend more and
save less because of lower prices and price-expectations, they would feel
richer, spend more and increase inflation in the future... For further
understanding we could take example of targeting higher interest-rate and
expectation, it would again lead to lower spending and lower interest-rate...
Moreover, if we try to target lower exchange-rate, lower demand for imports and
foreign-exchange would make foreign currency cheap and increase imports in
future... It looks we should try to target variables other-way if we want them
to work better.....
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