The Effects of Forward Guidance: Theory with Measured Expectations

Publikation: Working paper › Forskning

Standard

The Effects of Forward Guidance: Theory with Measured Expectations. / Roth, Christopher; Wiederholt, Mirko; Wohlfart, Johannes.

2021.

Publikation: Working paper › Forskning

Harvard

Roth, C, Wiederholt, M & Wohlfart, J 2021 'The Effects of Forward Guidance: Theory with Measured Expectations'.

APA

Roth, C., Wiederholt, M., & Wohlfart, J. (2021). The Effects of Forward Guidance: Theory with Measured Expectations. CEBI Working Paper Series Bind 21 Nr. 16

Vancouver

Roth C, Wiederholt M, Wohlfart J. The Effects of Forward Guidance: Theory with Measured Expectations. 2021 nov. 10.

Author

Roth, Christopher ; Wiederholt, Mirko ; Wohlfart, Johannes. / The Effects of Forward Guidance: Theory with Measured Expectations. 2021. (CEBI Working Paper Series; Nr. 16, Bind 21).

Bibtex

@techreport{70ed10be9215429995564769c507afa1,
title = "The Effects of Forward Guidance: Theory with Measured Expectations",
abstract = "We study the effects of forward guidance with an approach that combines theory with experimental estimates of counterfactual expectation adjustments. Guided by the model, we conduct experiments with representative samples of the US population to study how households adjust their expectations in response to changes in the Fed{\textquoteright}s projections about future interest rates. Respondents significantly downward-adjust their inflation expectations in response to learning about an increase in the Fed{\textquoteright}s projection about the federal funds rate three years in the future, and they expect inflation to respond most strongly immediately after the announcement. By contrast, respondents do not adjust their nominal income expectations. Our model-based estimates highlight a small average consumption response to forward guidance due to opposing effects from intertemporal substitution and changes in expected real income.",
keywords = "Faculty of Social Sciences, Expectation formation, information, Updating",
author = "Christopher Roth and Mirko Wiederholt and Johannes Wohlfart",
year = "2021",
month = nov,
day = "10",
language = "English",
series = "CEBI Working Paper Series",
number = "16",
type = "WorkingPaper",

}

RIS

TY - UNPB

T1 - The Effects of Forward Guidance: Theory with Measured Expectations

AU - Roth, Christopher

AU - Wiederholt, Mirko

AU - Wohlfart, Johannes

PY - 2021/11/10

Y1 - 2021/11/10

N2 - We study the effects of forward guidance with an approach that combines theory with experimental estimates of counterfactual expectation adjustments. Guided by the model, we conduct experiments with representative samples of the US population to study how households adjust their expectations in response to changes in the Fed’s projections about future interest rates. Respondents significantly downward-adjust their inflation expectations in response to learning about an increase in the Fed’s projection about the federal funds rate three years in the future, and they expect inflation to respond most strongly immediately after the announcement. By contrast, respondents do not adjust their nominal income expectations. Our model-based estimates highlight a small average consumption response to forward guidance due to opposing effects from intertemporal substitution and changes in expected real income.

AB - We study the effects of forward guidance with an approach that combines theory with experimental estimates of counterfactual expectation adjustments. Guided by the model, we conduct experiments with representative samples of the US population to study how households adjust their expectations in response to changes in the Fed’s projections about future interest rates. Respondents significantly downward-adjust their inflation expectations in response to learning about an increase in the Fed’s projection about the federal funds rate three years in the future, and they expect inflation to respond most strongly immediately after the announcement. By contrast, respondents do not adjust their nominal income expectations. Our model-based estimates highlight a small average consumption response to forward guidance due to opposing effects from intertemporal substitution and changes in expected real income.

KW - Faculty of Social Sciences

KW - Expectation formation

KW - information

KW - Updating

M3 - Working paper

T3 - CEBI Working Paper Series

BT - The Effects of Forward Guidance: Theory with Measured Expectations

ER -

ID: 287765711