Forward Guidance and Household Expectations

76 Pages Posted: 13 Feb 2020 Last revised: 15 Feb 2020

See all articles by Olivier Coibion

Olivier Coibion

University of Texas at Austin

Dimitris Georgarakos

European Central Bank (ECB) - Directorate General Research; Center for Financial Studies (CFS)

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

Multiple version iconThere are 4 versions of this paper

Date Written: February 10, 2020

Abstract

We compare the causal effects of forward guidance communication about future interest rates on households’ expectations of inflation, mortgage rates, and unemployment to the effects of communication about future inflation in a randomized controlled trial using more than 25,000 U.S. individuals in the Nielsen Homescan panel. We elicit individuals’ expectations and then provide 22 different forms of information regarding past, current and/or future inflation and interest rates. Information treatments about current and next year’s interest rates have a strong effect on household expectations but treatments beyond one year do not have any additional impact on forecasts. Exogenous variation in inflation expectations transmits into other expectations. The richness of our survey allows us to better understand how individuals form expectations about macroeconomic variables jointly and the non-response to long-run forward guidance is consistent with models in which agents have constrained capacity to collect and process information.

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

JEL Classification: E31, C83, D84

Suggested Citation

Coibion, Olivier and Georgarakos, Dimitris and Gorodnichenko, Yuriy and Weber, Michael, Forward Guidance and Household Expectations (February 10, 2020). Chicago Booth Research Paper No. 20-02; Fama-Miller Working Paper; University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2020-06. Available at SSRN: https://ssrn.com/abstract=3536578 or http://dx.doi.org/10.2139/ssrn.3536578

Olivier Coibion

University of Texas at Austin ( email )

2317 Speedway
Austin, TX 78712
United States

Dimitris Georgarakos

European Central Bank (ECB) - Directorate General Research ( email )

Sonnemannstrasse 20
Frankfurt am Main, 60314
Germany

Center for Financial Studies (CFS) ( email )

Grüneburgplatz 1
Frankfurt am Main, 60323
Germany

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)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

IZA Institute of Labor Economics

P.O. Box 7240
Bonn, D-53072
Germany

Michael Weber (Contact Author)

University of Chicago - Finance ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States

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