Do People Understand Monetary Policy?
Central Bank of Brazil; Pontifical Catholic University of Rio de Janeiro (PUC-Rio) - Department of Economics
Federal Reserve Bank of San Francisco
April 11, 2014
We combine questions from the Michigan Survey about future inflation, unemployment, and interest rates to investigate whether households are aware of the basic features of U.S. monetary policy. Our findings provide evidence that some households form their expectations in a way that is consistent with a Taylor (1993)-type rule. We also document a large degree of variation in the pattern of responses over the business cycle. In particular, the negative relationship between unemployment and interest rates that is apparent in the data only shows up in households' answers during periods of labor market weakness.
Number of Pages in PDF File: 50
Keywords: survey data, monetary policy, communication, Taylor rule, inflation expectations, Michigan Survey, Survey of Professional Forecasters
JEL Classification: E52, E58
Date posted: January 15, 2012 ; Last revised: April 24, 2014