Are Survey Expectations Theory-Consistent? The Role of Central Bank Communication and News

FEDS Working Paper No. 2015-035

http://dx.doi.org/10.17016/FEDS.2015.035

48 Pages Posted: 26 Jul 2015

See all articles by Lena Dräger

Lena Dräger

Leibniz University Hannover

Michael J. Lamla

ETH Zurich - KOF Swiss Economic Institute; University of Essex

Damjan Pfajfar

Board of Governors of the Federal Reserve System

Date Written: May 4, 2015

Abstract

In this paper we analyze whether central bank communication can facilitate the understanding of key economic concepts. Using survey data for consumers and professionals, we calculate how many of them have expectations consistent with the Fisher Equation, the Taylor rule and the Phillips curve and test, by accounting for three different communication channels, whether central banks can influence those. A substantial share of participants has expectations consistent with the Fisher equation, followed by the Taylor rule and the Phillips curve. We show that having theory-consistent expectations is beneficial, as it improves the forecast accuracy. Furthermore, consistency is time varying. Exploring this time variation, we provide evidence that central bank communication as well as news on monetary policy can facilitate the understanding of those concepts and thereby improve the efficacy of monetary policy.

Keywords: Macroeconomic expectations,central bank communication,consumer forecast accuracy,macroeconomic literacy,monetary news,survey microdata

JEL Classification: E31, E52, E58, D84, C25

Suggested Citation

Dräger, Lena and Lamla, Michael J. and Pfajfar, Damjan, Are Survey Expectations Theory-Consistent? The Role of Central Bank Communication and News (May 4, 2015). http://dx.doi.org/10.17016/FEDS.2015.035. Available at SSRN: https://ssrn.com/abstract=2612040 or http://dx.doi.org/10.2139/ssrn.2612040

Lena Dräger

Leibniz University Hannover ( email )

Schneiderberg 50
Hannover, 30167
Germany

Michael J. Lamla

ETH Zurich - KOF Swiss Economic Institute ( email )

Zurich
Switzerland

University of Essex ( email )

Wivenhoe Park
Colchester, CO4 3SQ
United Kingdom

Damjan Pfajfar (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

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