How expectations became governable: institutional change and the performative power of central banks

Abstract

Central banks have accumulated unparalleled power over the conduct of macroeconomic policy. Key for this development was the articulation and differentiation of monetary policy as a distinct policy domain. While political economists emphasize the foundational institutional changes that enabled this development, recent performativitystudies focus on central bankers' invention of expectation management techniques. In line with a few other works, this article aims to bring these two aspects together. The key argument is that, over the last few decades, central banks have identified different strategies to assume authority over Bexpectational politics^and reinforced dominant institutional forces within them. I introduce a comparative scheme to distinguish two different expectational governance regimes. My own empirical investigation focuses on a monetarist regime that emerged from corporatist contexts, where central banks enjoyed Bembedded autonomy^and where commercial banks maintained conservative reserve management routines. I further argue that innovations towards inflation targeting took place in countries with non-existent or disintegrating corporatist structures and where central banks turned to finance to establish a different version of expectation coordination. A widespread adoption of this Bfinancialized^expectational governance has been made possible by broader processes of institutional convergence that were supported by central bankers themselves.

Transcending History’s Heavy Hand: The Future in Economic Action

“…Modern corporations, associations, and state agencies maintain elaborate professional repertoires to shape discourse. While equally endemic in other economic domains, the professional "management of expectations" has been singled out in research on central banks (Braun 2015;Wansleben 2018). In line with our claim that the analysis of social structures and expectations may be highly complementary, this strand of research in addition shows that central banks' ability to durably influence expectations in society requires specific financial market struc-tures.…”

The Politics of Uncertainty

“…The more market actors are assured that normal market conditions will continue (indefinitely) into the future, the more the future becomes a 'useful fiction', that is continuously presupposed but must never actually affect the normal operations of the system. As we shall see in the next section, central banks' efforts to gain 'infrastructural power' (Walter and Wansleben 2019;Braun and Gabor 2019;Braun 2018a), by seeking to develop technologies for influencing financial markets (and the economy) by 'governing through expectations' (Wansleben 2018;Braun 2015), have become directly complicit with this specific temporality of modern finance.…”

What do stress tests test? Experimentation, demonstration, and the sociotechnical performance of regulatory science

“…The Bank’s decision to frame its stress tests from 2016 onwards as “predictable” (Bank of England, , p. 25) should be understood in this context. The notion of predictability is well established in modern monetary policy and is integral to the idea of governing interest rates by shaping market expectations (Blinder, ; Holmes, ; Wansleben, ). In much the same way that market participants are supposed to be able to anticipate movements in interest rates by attending closely to policymakers’ signals, the idea is that market participants can predict developments in the stress scenarios’ severity and decisions about the use of the countercyclical buffer by consulting the FPC’s financial stability reports (Brazier, , p. 76).…”