Asymmetric Monetary Policy Expectations

64 Pages Posted: 28 Sep 2021 Last revised: 2 Oct 2022

See all articles by Anthony M. Diercks

Anthony M. Diercks

Board of Governors of the Federal Reserve System

Hiroatsu Tanaka

Board of Governors of the Federal Reserve System

Paul Cordova

Columbia University

Date Written: September 14, 2022

Abstract

We document novel empirical evidence of significant time-varying skewness in the aggregate forecast distribution of the federal funds rate using the Survey of Primary Dealers. We show a New-Keynesian model with the effective lower bound can endogenously generate positive and negative skewness observed in the data. Time-varying skewness has important implications for the measurement of policy expectations. In particular, the Blue Chip Survey (BCS) forecasts track the mode more closely than the mean. The mean measure implies significantly less negative term premia on average and also outperforms the BCS forecasts based on the mean squared error, consistent with optimal forecasting.

Keywords: Skewness, Federal Funds Rate Expectations, Survey of Primary Dealers, Blue Chip Survey, Monetary Policy, DSGE

JEL Classification: E43, E44, E52, G17

Suggested Citation

Diercks, Anthony M. and Tanaka, Hiroatsu and Cordova, Paul, Asymmetric Monetary Policy Expectations (September 14, 2022). Available at SSRN: https://ssrn.com/abstract=3930267 or http://dx.doi.org/10.2139/ssrn.3930267

Anthony M. Diercks

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Hiroatsu Tanaka (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States

Paul Cordova

Columbia University ( email )

3022 Broadway
New York, NY 10027
United States

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