EconPapers    
Economics at your fingertips  
 

Inflation Expectations and Monetary Policy Surprises

Snezana Eminidou, Marios Zachariadis () and Elena Andreou ()
Additional contact information
Elena Andreou: University of Cyprus

No 2018-1, Working Papers from Central Bank of Cyprus

Abstract: We use monthly data across 15 euro area economies for the period 1985:1-2015:3 to obtain monetary policy changes that can be regarded as surprises for different types of consumers. A novel feature of our empirical approach is the estimation of monetary policy surprises based on changes in monetary policy that were unanticipated according to consumers’ stated beliefs about the economy. We look at how these surprises affect consumers’ inflation expectations. We find that such monetary policy surprises can have the opposite impact on inflation expectations to those obtained under the assumption that consumers are well-informed about a set of macroeconomic variables describing the state of the economy. When we relax the latter assumption and focus instead on consumers’ stated beliefs about the economy, unanticipated increases in the interest rate raise inflation expectations before the crisis. This is consistent with imperfect information theoretical settings where unanticipated increases in interest rates are interpreted as positive news about the state of the economy by consumers that know policymakers have relatively more information. This impact changes sign since the crisis and varies, e.g. across low versus high-income consumers in a manner consistent with the latter becoming rationally attentive in a period during which signal extraction is presumably more difficult and the incentive to extract information greater.

Keywords: Imperfect information; rational inattention; shocks; beliefs; crisis (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-rmg
Date: 2018-03
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
https://www.centralbank.cy/images/media/pdf/CBC%20Working%20Paper%202018-1.pdf (application/pdf)

Related works:
Working Paper: Inflation Expectations and Monetary Policy Surprises (2017) Downloads
Working Paper: Inflation expectations and monetary policy surprises (2017) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cyb:wpaper:2018-1

Access Statistics for this paper

More papers in Working Papers from Central Bank of Cyprus Contact information at EDIRC.
Bibliographic data for series maintained by Anna Markidou ().

 
Page updated 2019-12-06
Handle: RePEc:cyb:wpaper:2018-1