Abstract
Using a decomposition of US monetary policy shocks and inflation forecasts from Consensus Economics, we find that information and monetary policy shocks move inflation expectations in opposite directions. Better performing forecasters appear less reliant on the informational content of announcements.
Highlights
In contrast to households and firms, financial market participants and professional forecasters seem to pay much attention to the actions of monetary policymakers
How financial markets perceive the path of future inflation drives contemporaneous long-term interest rates and provides a direct transmission mechanism of monetary policy announcements (Coibion et al, 2020)
To examine the interaction between characteristics of forecasters’ inflation expectations, like the extent to which individual forecasts deviate from the median forecast and the accuracy of individual forecasters, and monetary policy and information shocks
Summary
In contrast to households and firms, financial market participants and professional forecasters seem to pay much attention to the actions of monetary policymakers. As pointed out by Jarociński and Karadi (2020) ( on JK), central bank announcements simultaneously convey information both about monetary policy and the central bank’s assessment of the economic outlook. These authors disentangle monetary policy shocks from contemporaneous information shocks and use a Bayesian structural vector autoregression to assess their dynamic impact. To examine the interaction between characteristics of forecasters’ inflation expectations, like the extent to which individual forecasts deviate from the median forecast and the accuracy of individual forecasters, and monetary policy and information shocks
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