Monetary Policy Announcements and Expectations: Evidence from German Firms

46 Pages Posted: 20 Aug 2019

See all articles by Zeno Enders

Zeno Enders

University of Heidelberg

Franziska Huennekes

Ludwig Maximilian University of Munich (LMU)

Gernot J. Müller

University of Tuebingen - Department of Economics

Date Written: August 2019

Abstract

We assess empirically whether monetary policy announcements impact firm expectations. Two features of our data set are key. First, we rely on a survey of production and price expectations of German firms, that is, expectations of actual price setters. Second, we observe the day on which firms submit their answers to the survey. We compare the responses of firms before and after monetary policy surprises and obtain two results. First, firm expectations respond to policy surprises. Second, the response becomes weaker as the surprise becomes bigger. A contractionary surprise of moderate size reduces firm expectations, while a moderate expansionary surprise raises them. Large surprises, both negative and positive, fail to alter expectations. Consistent with this result, we find that many of the ECB's announcements of non-conventional policies did not affect expectations significantly. Overall, our results are consistent with the notion that monetary policy surprises generate an information effect which is endogenous to the size of the policy surprise.

Keywords: European Central Bank, Firm expectations, information effect, Monetary policy announcements, survey data

JEL Classification: E3, E52, E58

Suggested Citation

Enders, Zeno and Huennekes, Franziska and Müller, Gernot J., Monetary Policy Announcements and Expectations: Evidence from German Firms (August 2019). CEPR Discussion Paper No. DP13916. Available at SSRN: https://ssrn.com/abstract=3439470

Zeno Enders (Contact Author)

University of Heidelberg ( email )

Franziska Huennekes

Ludwig Maximilian University of Munich (LMU) ( email )

Geschwister-Scholl-Platz 1
Munich, DE Bavaria 80539
Germany

Gernot J. Müller

University of Tuebingen - Department of Economics ( email )

Mohlstrasse 36
D-72074 Tuebingen, 72074
Germany

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