Influencing household inflation expectations

Alberto Cavallo, Guillermo Crucas, Ricardo Perez-Truglia 10 November 2014

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Expectations about macroeconomic variables play an important role in economic theory and policymaking. Household inflation expectations, in particular, are key to understand consumption and investment decisions, and ultimately, the impact of monetary policies. Although central banks have a natural desire to influence expectations, there is no consensus on how household expectations are formed or what the best way to affect them is (see Bernanke 2007, Bachmann et al. 2012, Coibion and Gorodnichenko 2013, and Armantier et al. 2014).

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Topics:  Monetary policy

Tags:  expectations, beliefs, inflation, inflation expectations, monetary policy, US, Argentina, central bank communication, rational inattention, costly information, learning

“Mensch tracht, und Gott lacht” – what’s the best guidance on monetary policy?

David Miles 22 October 2014

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“Mensch tracht, und Gott lacht” is a Yiddish proverb – men plan and God laughs. Woody Allen puts the same thought this way: “If you want to make God laugh tell him about your plans”. Some people might see these words as a fitting epitaph for forward guidance on monetary policy. The Bank of England has certainly faced a good deal of criticism for the guidance that it has recently been giving, as has the Federal Reserve in the US.

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Topics:  Monetary policy

Tags:  forward guidance, unconventional monetary policy, monetary policy, Central Banks, central bank communication, interest rates, uncertainty

What does the Fed’s language about 2013 mean? A rules-based interpretation

Olivier Coibion, Yuriy Gorodnichenko 21 October 2011

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In August 2011, members of the Federal Reserve’s Federal Open Market Committee (FOMC) reaffirmed their policy stance of maintaining the federal funds rate in a narrow range slightly above zero. But in an unprecedented step, they also added new language to their public release asserting that their current expectations of macroeconomic conditions would warrant “exceptionally low levels for the federal funds rate at least through mid-2013.”  This new policy statement led to an unusual split of the committee – three (out of ten) voting members dissented.

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Topics:  Monetary policy

Tags:  monetary policy, Federal Reserve, central bank communication

Long-run inflation expectations anchored more firmly in the euro area than in the United States

Benjamin K. Johannsen, Andrew Levin ,

Date Published

Wed, 10/24/2007

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The United States and the euro area are economies of comparable size and openness; furthermore both the Federal Reserve and the European Central Bank (ECB) have a legal mandate to maintain price stability. Recent history of long-run inflation expectations suggests reasonably well-anchored expectations in both regions, however no studies to date have compared the recent evolution and dispersion across forecasters' long-horizon projections in the United States to those in the EU.

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ECB, central bank communication, euro-area inflation, inflation compensation