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You are looking at 1 - 2 of 2 items for :

  • "expectation disagreement" x
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Cover IMF Working Papers
Monetary Policy Surprises and Inflation Expectation Dispersion
Bertrand Gruss, Mrs. Sandra V Lizarazo Ruiz, and Mr. Francesco Grigoli
Anchoring of inflation expectations is of paramount importance for central banks’ ability to deliver stable inflation and minimize price dispersion. Relying on daily interest rates and inflation forecasts from major financial institutions in the United States, we calculate monetary policy surprises of individual analysts as the unexpected changes in the federal funds rate before the meetings of the Federal Reserve Board. We then assess the effect of monetary policy surprises on the dispersion of inflation expectations, a proxy for the extent of anchoring, which is based on the same analysts’ inflation projections submit-ted after the Fed meetings. With an identification strategy that hinges on a tight window around the Fed meetings, we find that monetary policy surprises lead to an increase in the dispersion of inflation expectations up to nine months after the policy meeting. We rationalize these results with a partial equilibrium model that features rational expectations and sticky information. When we allow the degree of information rigidity to depend on the realization of firm-specific shocks, the theoretical results are qualitatively consistent and quantitatively close to the empirical evidence.
Keywords:
Anchoring; disagreement; dispersion; information rigidity; in?ation expectations; sticky information.; WP; inflation expectation; expectation dispersion; monetary policy surprise; price level; inflation dispersion; inflation expectation formation mechanism; inflation expectations; sticky information; expectation decrease; expectation disagreement; inflation release; standard deviation; Inflation; Inflation targeting; Central bank policy rate; Futures; Global
Cover IMF Working Papers
Monetary Policy Surprises and Inflation Expectation Dispersion*
Bertrand Gruss, Mrs. Sandra V Lizarazo Ruiz, and Mr. Francesco Grigoli

that forecasters fail to systematically update their forecasts and disagree when updating. They argue that Mankiw and Reis (2002) and Sims (2003) models of sticky and noisy information are qualitatively consistent with the empirical findings but cannot quantitatively replicate the error and disagreement observed in the data. We contribute to this strand of literature by documenting a novel fact about inflation expectation disagreement, that it increases in response to policy rate shocks, and by showing that this fact can be rationalized within a sticky

Keywords:
Anchoring; disagreement; dispersion; information rigidity; in?ation expectations; sticky information.; WP; inflation expectation; expectation dispersion; monetary policy surprise; price level; inflation dispersion; inflation expectation formation mechanism; inflation expectation decrease; inflation expectation disagreement; interest rate shock