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 performativity-studies 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 “expectational 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 “embedded 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 “financialized” expectational governance has been made possible by broader processes of institutional convergence that were supported by central bankers themselves.

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