Words and deeds in managing expectations: empirical evidence on an inflation targeting economy

Pawel Baranowski, Wirginia Doryń, Tomasz Łyziak and Ewa Stanisławska

No 326, NBP Working Papers from Narodowy Bank Polski

Abstract: The conduct of monetary policy nowadays involves not only interest rate decisions but also central bank communication, aimed at managing the expectations of the private sector. In this paper, we apply epidemiological model to private-sector experts’ forecasts regarding interest rates and inflation in Poland—an economy with over 20 years of inflation targeting history. We show that both of these factors affect interest rates and inflation expectations. Our study contributes to the literature by including a wide set of factors affecting expectations with a special focus on central bank decisions, projections and the tone of official documents. In general, the textual content of monetary policy minutes affects experts’ expectations more at the shortest horizons (nowcasts and one quarter ahead), while GDP and inflation projections released by the central bank play a larger role for slightly longer horizons (two quarters ahead or longer). As far as monetary policy actions are concerned, a positive interest rate surprise produces an upward shift in the whole path of interest rate expectations and leads to a decrease in one-year-ahead inflation expectations.

Keywords: central bank communication; inflation expectations; interest rate expectations; text mining (search for similar items in EconPapers)
JEL-codes: E52 E58 (search for similar items in EconPapers)
Pages: 51
Date: 2020
New Economics Papers: this item is included in nep-big, nep-cba, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:nbp:nbpmis:326

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