Do People Understand Monetary Policy?
50 Pages Posted: 15 Jan 2012 Last revised: 24 Apr 2014
Date Written: 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.
Keywords: survey data, monetary policy, communication, Taylor rule, inflation expectations, Michigan Survey, Survey of Professional Forecasters
JEL Classification: E52, E58
Suggested Citation: Suggested Citation