Do Monetary Policy Announcements Shift Household Expectations?

67 Pages Posted: 9 Sep 2019 Last revised: 22 Jan 2020

See all articles by Daniel J. Lewis

Daniel J. Lewis

Federal Reserve Banks - Federal Reserve Bank of New York

Christos Makridis

Massachusetts Institute of Technology (MIT) - Sloan School of Management

Karel Mertens

Federal Reserve Banks - Federal Reserve Bank of Dallas

Multiple version iconThere are 2 versions of this paper

Date Written: September 1, 2019

Abstract

We use a decade of daily survey data from Gallup to study how monetary policy influences households’ beliefs about economic conditions. We first document that public confidence in the state of the economy reacts instantaneously to certain types of macroeconomic news. Next, we show that surprises to the federal funds target rate are among the news that have statistically significant and instantaneous effects on economic confidence. Specifically, we find that a surprise increase in the target rate robustly leads to an immediate decline in household confidence, at odds with previous findings that suggest consumers are largely inattentive to economic developments. Monetary policy news about forward guidance and asset purchases does not have similarly clear and robust immediate effects on household beliefs. We document heterogeneity across demographics in the responsiveness of macroeconomic beliefs to aggregate news, and we relate our findings to existing evidence on informational rigidities.

Keywords: monetary policy shocks, central bank communication, information rigidities, consumer confidence, high-frequency identification

JEL Classification: E30, E40, E50, E70

Suggested Citation

Lewis, Daniel J. and Makridis, Christos and Mertens, Karel, Do Monetary Policy Announcements Shift Household Expectations? (September 1, 2019). FRB of New York Staff Report No. 897, September 2019, Available at SSRN: https://ssrn.com/abstract=3449467 or http://dx.doi.org/10.2139/ssrn.3449467

Daniel J. Lewis

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Christos Makridis

Massachusetts Institute of Technology (MIT) - Sloan School of Management ( email )

100 Main Street
E62-416
Cambridge, MA 02142
United States

Karel Mertens (Contact Author)

Federal Reserve Banks - Federal Reserve Bank of Dallas ( email )

2200 North Pearl Street
PO Box 655906
Dallas, TX 75265-5906
United States

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