The Effects of Monetary Policy: Theory with Measured Expectations

Christopher Roth, Mirko Wiederholt () and Johannes Wohlfart ()
Additional contact information
Mirko Wiederholt: LMU Munich and Sciences Po, CESifo, CEPR
Johannes Wohlfart: Department of Economics and CEBI, University of Copenhagen, CESifo, Danish Finance Institute

No 217, ECONtribute Discussion Papers Series from University of Bonn and University of Cologne, Germany

Abstract: We study the effects of monetary policy on aggregate consumption combining a heterogeneous agent model with measured expectations under different policy counterfactuals. We express the consumption of non-hand-to-mouth households as a function of expectations only and elicit all expectations appearing in the consumption functions for alternative policy scenarios with tailored surveys. Feeding these individual-level expectations into the model illustrates that a modest forward guidance statement in March 2021 would have reduced aggregate consumption by 0.14 percent on impact and an interest rate hike of 40 basis points in March 2022 would have reduced aggregate consumption by 0.30 percent on impact.

Keywords: Monetary Policy; Expectation Formation; Aggregate Consumption (search for similar items in EconPapers)
JEL-codes: D12 D14 D83 D84 E32 G11 (search for similar items in EconPapers)
Pages: 116 pages
Date: 2023-01
New Economics Papers: this item is included in nep-ban, nep-cba, nep-dge and nep-mon
References: View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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https://www.econtribute.de/RePEc/ajk/ajkdps/ECONtribute_217_2023.pdf First version, 2023 (application/pdf)

Related works:
Working Paper: The Effects of Monetary Policy: Theory with Measured Expectations (2023)
Working Paper: The Effects of Monetary Policy: Theory with Measured Expectations (2022)
Working Paper: The Effects of Monetary Policy: Theory with Measured Expectations (2022)
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Persistent link: https://EconPapers.repec.org/RePEc:ajk:ajkdps:217

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