The Effects of Monetary Policy: Theory with Measured Expectations

Christopher Roth, Mirko Wiederholt and Johannes Wohlfart

No 10216, CESifo Working Paper Series from CESifo

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)
Date: 2023
New Economics Papers: this item is included in nep-mon
References: View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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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:ces:ceswps:_10216

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