Do Monetary Policy Announcements Shift Household Expectations?

48 Pages Posted: 22 Oct 2019

See all articles by Daniel Lewis

Daniel 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

Date Written: 2019-09-05

Abstract

We use daily survey data from Gallup to assess whether households' beliefs about economic conditions are influenced by surprises in monetary policy announcements. We first provide more general evidence that public confidence in the state of the economy reacts to certain types of macroeconomic news very quickly. 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. In contrast, surprises about forward guidance and asset purchases do not have similar effects on household beliefs, perhaps because they are less well understood. We document heterogeneity in the responsiveness of sentiment across demographics.

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

JEL Classification: E30, E40, E50, E70

Suggested Citation

Lewis, Daniel and Makridis, Christos and Mertens, Karel, Do Monetary Policy Announcements Shift Household Expectations? (2019-09-05). FRB of Dallas Working Paper No. 1906. Available at SSRN: https://ssrn.com/abstract=3473100 or http://dx.doi.org/10.24149/wp1906

Daniel Lewis (Contact Author)

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

33 Liberty Street
New York, NY 10045
United States

HOME PAGE: http://https://www.newyorkfed.org/research/economists/lewis

Christos Makridis

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

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

Karel Mertens

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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