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Bertrand Gruss, Mrs. Sandra V Lizarazo Ruiz, and Mr. Francesco Grigoli

potentially boosting activity and lowering inflation when expectations are poorly coordinated ( Hoffmann and Hürtgen, 2016 ). Disagreement among inflation forecasters may also lead to an inefficient dispersion in actual prices, even if inflation is stable at low levels. 1 While several studies explored the drivers of inflation forecast disagreement ( Mankiw et al., 2003 ; Dovern et al., 2012 ), there is still limited understanding on how monetary policy actions affect inflation expectation dispersion. This paper aims at filling this void. We first estimate empirically

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.
Bertrand Gruss, Mrs. Sandra V Lizarazo Ruiz, and Mr. Francesco Grigoli

Front Matter Page Statistics Department Contents 1 Introduction 2 Data 2.1 Monetary Policy Surprises 2.2 Dispersion of Inflation Expectations 3 Empirical Analysis 3.1 The Response of Inflation Expectation Dispersion to Monetary Policy Surprises . 3.2 Narrower Time Windows 3.3 The Role of Market Surprises 3.4 Deviations From the Inflation Target 4 A Model of Inflation Expectations Dispersion 4.1 Full Information 4.2 Constant Degree of Information Rigidity 4.3 Aggregate State-Dependent Degree of Information Rigidity

Yoosoon Chang, Fabio Gómez-Rodríguez, and Mr. Gee Hee Hong
In this paper, we examine how economic shocks affect the distribution of household inflation expectations. We show that the dynamics of households' expected inflation distributions are driven by three distinctive functional shocks, which influence the expected inflation distribution through disagreement, level shift and ambiguity. Linking these functional shocks to economic shocks, we find that contractionary monetary shocks increase the average level of inflation expectation with anchoring effects, with a reduction in disagreement and an increase in the share of households expecting future inflation to be between 2 to 4 percent. Such anchoring effects are not observed when the high inflation periods prior to the Volcker disinflation are included. Expansionary government spending shocks have inflationary effects on both short and medium-run inflation expectations, while an increase in personal income tax shocks is inflationary for mediumrun. A surprise increase in gasoline prices increases the level of inflation expectations, but lowers the share of households with 2 percent inflation expectations.
Yoosoon Chang, Fabio Gómez-Rodríguez, and Mr. Gee Hee Hong

debt: lessons from Brazil .” Friedman , Milton et al . 1968 . “ The role of monetary policy .” Essential Readings in Economics , 58 ( 1 ): 215 – 231 . García-Schmidt , Mariana and Michael Woodford . 2019 . “ Are low interest rates deflationary? A paradox of perfect-foresight analysis .” American Economic Review , 109 ( 1 ): 86 – 120 . Grigoli , Francesco , Bertrand Gruss , and Sandra Lizarazo . 2020 . “ Monetary Policy Surprises and Inflation Expectation Dispersion .” Available at SSRN 3758086. Hall , Peter and