Do Monetary Policy Announcements Shift Household Expectations?

48 Pages Posted: 22 Oct 2019 Last revised: 29 Apr 2020

See all articles by Daniel J. Lewis

Daniel J. Lewis

Federal Reserve Banks - Federal Reserve Bank of New York

Christos Makridis

Stanford University; Columbia University - Columbia Business School; Arizona State University (ASU); Department of Veterans Affairs (VA)

Karel Mertens

Federal Reserve Banks - Federal Reserve Bank of Dallas; FRB 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 J. and Makridis, Christos and Mertens, Karel 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 J. Lewis (Contact Author)

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

33 Liberty Street
New York, NY 10045
United States

Christos Makridis

Stanford University ( email )

Stanford, CA 94305
United States

Columbia University - Columbia Business School ( email )

3022 Broadway
New York, NY 10027
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Arizona State University (ASU) ( email )

Farmer Building 440G PO Box 872011
Tempe, AZ 85287
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Department of Veterans Affairs (VA) ( email )

810 Vermont Avenue NW
Washington, DC 20420
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Karel Mertens

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

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

FRB Dallas ( email )

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

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