Monetary Policy Communications and their Effects on Household Inflation Expectations

64 Pages Posted: 15 Jan 2019 Last revised: 17 Sep 2019

See all articles by Olivier Coibion

Olivier Coibion

University of Texas at Austin

Yuriy Gorodnichenko

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Michael Weber

University of Chicago - Finance

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Date Written: September 12, 2019

Abstract

We study how different forms of communication influence inflation expectations in a randomized controlled trial using nearly 20,000 U.S. individuals. We elicit individuals’ inflation expectations in the Nielsen Homescan panel then provide eight different forms of information regarding inflation. Reading the actual Federal Open Market Committee (FOMC) statement has about the same average effect on expectations as simply being told about the Federal Reserve’s inflation target. Reading a news article about the most recent FOMC meetings results in a forecast revision which is smaller by half. Our results have implications for how central banks should communicate to the broader public.

Keywords: expectations management, inflation expectations, surveys, communication, randomized controlled trial

JEL Classification: E31, C83, D84

Suggested Citation

Coibion, Olivier and Gorodnichenko, Yuriy and Weber, Michael, Monetary Policy Communications and their Effects on Household Inflation Expectations (September 12, 2019). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2019-03. Available at SSRN: https://ssrn.com/abstract=3315749 or http://dx.doi.org/10.2139/ssrn.3315749

Olivier Coibion

University of Texas at Austin ( email )

2317 Speedway
Austin, TX 78712
United States

Yuriy Gorodnichenko

University of California, Berkeley - Department of Economics ( email )

549 Evans Hall #3880
Berkeley, CA 94720-3880
United States

HOME PAGE: http://www.econ.berkeley.edu/~ygorodni/index.htm

National Bureau of Economic Research (NBER)

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IZA Institute of Labor Economics

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Michael Weber (Contact Author)

University of Chicago - Finance ( email )

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Chicago, IL 60637
United States

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