Disagreement about inflation expectations and monetary policy transmission

Elisabeth Falck, M. Hoffmann and Patrick Hürtgen

Journal of Monetary Economics, 2021, vol. 118, issue C, 15-31

Abstract: Time-variation in disagreement about future inflation is a stylized fact in survey data, but little is known on how disagreement interacts with the efficacy of monetary policy. We show that a contractionary 100 bps U.S. monetary policy shock leads to a statistically significant increase in inflation and inflation expectations of up to 0.7 percentage points in times of high disagreement, whereas in times of low disagreement it leads to a significant decline in these variables of around 0.8 percentage points. We reconcile these state-dependent effects with a regime-switching dispersed information New Keynesian model, where we calibrate the information structure to match disagreement about inflation expectations in U.S. data.

Keywords: Disagreement; Dispersed information; Disanchoring of inflation expectations; Monetary policy transmission; State-dependent effects of monetary policy; Local projections (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (28)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:118:y:2021:i:c:p:15-31

DOI: 10.1016/j.jmoneco.2019.08.018

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