A THEORETICAL APPROACH TO THE IMPACT OF EXPECTATIONS IN MONETARY POLICIES

Abstract

In an economy, the consumption preferences, pricing, production, and investment decisions of consumers, firms, and investors are influenced by their expectations about the future of the market. This study investigates the theoretical foundation of the impact of market expectations on economic policies. The decision-making processes of consumers, firms, and investors are significantly affected by market expectations. When these decisions align with policies set by economic policymakers, anticipated policy changes tend to be factored in advance, thus avoiding any shock effects in the market. Conversely, if there is inconsistency between these expectations and the implemented policies, fluctuations in the market may arise. This study explores the fundamental aspects of the "adaptive expectations" and "rational expectations" theories to emphasize the importance of market expectations. According to the adaptive expectations theory, individuals base their predictions about the future of the economy on historical data and gradually adjust these predictions. In contrast, the rational expectations theory assumes that market participants use all available information to make accurate predictions, with potential errors being random and corrected over time. After these theories are examined, a literature review was conducted on studies indexed in the Web of Science database related to adaptive and rational expectations theories, using bibliometric analysis. The findings indicate that these theories are frequently referenced, particularly in developed countries, during periods of economic fluctuations. In this regard, the study prepared using the qualitative research method provides important theoretical frameworks that should be considered in future research.