Central Banks, Expectations and Collective Psychology - Limits and Possibilities of Behavioral Monetary Policy

Abstract This paper presents a critical review of the concept of animal spirits and its importance in shaping contemporary monetary policy. Starting from Keynes’s theoretical assumptions and contributions in the field of behavioral macroeconomics, the paper analyzes the ways in which psychological factors such as trust, optimism, fear and panic affect economic cycles, decision-making processes and the application of monetary policy measures. The methodological framework of the paper is based on a comprehensive analysis of theoretical and empirical research, including behavioral macroeconomic models, expectations experiments and examples from central bank practice, which enables the integration of different approaches and evaluations of different arguments for and against the active management of collective expectations and sentiment at the macroeconomic level. The author’s special contribution is reflected in the systematization of the literature and a critical review of the results so far, with a special emphasis on how market, institutional and cognitive aspects influence the creation of monetary policy. In this way, the paper goes beyond classical approaches that rely exclusively on rational expectations and offers a much broader framework for understanding the role of central banks in stabilizing the economy. The scientific significance of the topic stems from the fact that behavioral monetary policy is becoming increasingly important in conditions of global crises and financial instability, while traditional models often fail to adequately explain the occurrence of extreme economic fluctuations. The paper concludes that the concept of “animal spirits” can no longer be treated only as a metaphor, but also as a measurable and analytically significant phenomenon that requires systematic attention from policymakers and researchers, which ultimately opens up space for the development of new institutional solutions and research directions.