Animal spirits, confidence and monetary policy

The paper discusses the ways an independent Central Bank committed to medium term achievement of a mixed objective can manage its short term degrees of freedom. We suppose imperfect and asymmetric information between a Bank playing leader in a Stackelberg game and agents reacting to its initiatives. Agents are heterogeneous according their inflationary expectations and their aversion to inflation: once combined those two characteristics determine the relative weight of bulls and bears in the economy. Central Banks adapts its dynamical path to the initial distribution of opinions, but also influences inflation aversion and animal spirits by its previous actions. The style of monetary policy the Bank chooses to implement is not independent of the nature and the transformation of opinions of Agents. This policy can be of a Lucasian style: in this case, the Bank through its actions has to convince agents that there is an inverse relationship between inflation and growth. It can as well be of a renewed Phillips' style: in this case, agents consider that, even in a world where time-inconsistencies are not costless, an adequate level of inflation does not preclude growth. These two kinds of monetary policies are both associated to the gradual improvement of the confidence that Central bank is able to generate during its medium term mandate.