This overlaps with the signaling effect associated with the “quantity” that I just mentioned.6 One possible problem is that the theoretical foundations seem not to be well established. Standard theories simply assume that rational expectations automatically hold, while they tend to be silent on exactly what it would take to change the way firms and households formulate their expectations.
I am quite confident, however, that a strong commitment to policy objectives, clear and consistent communication, and decisive action to fulfill the commitment would collectively be powerful enough to have a significant impact on inflation expectations, and therefore on the behavior of private entities.