Implications of Behavioral Economics for Monetary Policy in Times of Zero Interest Rates

This bachelor thesis deals with the development of behavioral economics and its significance for monetary policy, especially in times of zero interest rates, even though the content of the work relates as well to other situations in which the higher uncertainty and imbalance prevail on the market. The first part discusses briefly whether it is possible to approach economics as pure natural or pure social science. In the second part, the focus is devoted to the rise and dominance of mathematical interpretation of economics, its success, but also its limits, which have been underestimated in the recent past and have become the basis for a critique of economic modeling assumptions today. The third chapter elaborates the economic tradition of working with the subjective and immeasurable variables and the emergence of behavioral economics as a more scientific approach to the previously just observed and stated socio-psychological phenomena, which affect the fuctioning of financial markets. The last, fourth, part deals directly with monetary policy. It pursues the current challenges, which the central bank are facing now, and search for possible application of the behavioral economics findings in adressing these problems. The conclusion is that behavioral economics represents evolution, rather than revolution, in the economic theory and in the area of monetary policy it is mainly communication and formation of (inflation) expectations, where it can turn out to be useful.