The effect of unconventional monetary policy on inflation expectations: evidence from firms in the United Kingdom

Lena Boneva, James Cloyne, Martin Weale () and Tomasz Wieladek
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Martin Weale: Monetary Policy Committee Unit, Bank of England

No 47, Discussion Papers from Monetary Policy Committee Unit, Bank of England

Abstract: This paper investigates the effect of quantitative easing (QE) and other unconventional monetary policies on inflation and wage expectations of UK manufacturing firms. To identify the effect of QE on firms’ expectations, we use a novel approach of combining microeconometric data with macroeconomic shocks: QE is exogenous to inflation expectations of individual firms, and so are other macroeconomic developments like aggregate inflation or GDP growth. We find that firms’ inflation expectations increase by 0.22 percentage points in response to £50 billion of QE, implying that inflation expectations are part of the transmission mechanism of QE. In contrast, we find a positive but small and insignificant effect of forward guidance on inflation and wage expectations.

Keywords: Inflation expectations; firm survey data; unconventional monetary policy; quantitative easing (search for similar items in EconPapers)
JEL-codes: D22 E31 E52 (search for similar items in EconPapers)
Pages: 23 pages
Date: 2016-07-21
New Economics Papers: this item is included in nep-eec, nep-mac and nep-mon
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Citations: View citations in EconPapers (22)

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Related works:
Journal Article: The Effect of Unconventional Monetary Policy on Inflation Expectations: Evidence from Firms in the United Kingdom (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:mpc:wpaper:0047

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