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Disagreement about inflation expectations and monetary policy transmission

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  • Falck, E.
  • Hoffmann, M.
  • Hürtgen, P.

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.

Suggested Citation

  • Falck, E. & Hoffmann, M. & Hürtgen, P., 2021. "Disagreement about inflation expectations and monetary policy transmission," Journal of Monetary Economics, Elsevier, vol. 118(C), pages 15-31.
    • Handle: RePEc:eee:moneco:v:118:y:2021:i:c:p:15-31
    DOI: 10.1016/j.jmoneco.2019.08.018
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    3. Lin, Jianhao & Mei, Ziwei & Chen, Liangyuan & Zhu, Chuanqi, 2023. "Is the People's Bank of China consistent in words and deeds?," China Economic Review, Elsevier, vol. 78(C).
    4. Zhao Han & Xiaohan Ma & Ruoyun Mao, 2023. "The Role of Dispersed Information in Inflation and Inflation Expectations," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 48, pages 72-106, April.
    5. Esady, Vania, 2022. "Real and nominal effects of monetary shocks under time-varying disagreement," Bank of England working papers 1007, Bank of England.
    6. Basse, Tobias & Wegener, Christoph, 2022. "Inflation expectations: Australian consumer survey data versus the bond market," Journal of Economic Behavior & Organization, Elsevier, vol. 203(C), pages 416-430.
    7. McNeil, James, 2023. "Monetary policy and the term structure of inflation expectations with information frictions," Journal of Economic Dynamics and Control, Elsevier, vol. 146(C).
    8. Gabriel Caldas Montes & Victor Maia, 2023. "The reaction of disagreements in inflation expectations to fiscal sentiment obtained from information in official communiqués," Bulletin of Economic Research, Wiley Blackwell, vol. 75(4), pages 828-859, October.
    9. Yongchen Zhao, 2022. "Uncertainty and disagreement of inflation expectations: Evidence from household‐level qualitative survey responses," Journal of Forecasting, John Wiley & Sons, Ltd., vol. 41(4), pages 810-828, July.
    10. Ina Hajdini & Edward S. Knotek & John Leer & Mathieu Pedemonte & Robert W. Rich & Raphael Schoenle, 2022. "Indirect Consumer Inflation Expectations," Economic Commentary, Federal Reserve Bank of Cleveland, vol. 2022(03), pages 1-9, March.
    11. Marwil J. Dávila-Fernández & Germana Giombini & Edgar J. Sánchez-Carrera, 2023. "Climateflation and monetary policy in an environmental OLG growth model," Department of Economics University of Siena 905, Department of Economics, University of Siena.
    12. Junichi Kikuchi & Yoshiyuki Nakazono, 2023. "The Formation of Inflation Expectations: Microdata Evidence from Japan," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 55(6), pages 1609-1632, September.
    13. Alessandro Barbera & Dora Xia & Sonya Zhu, 2023. "The term structure of inflation forecasts disagreement and monetary policy transmission," BIS Working Papers 1114, Bank for International Settlements.
    14. Andrejs Zlobins, 2022. "Into the Universe of Unconventional Monetary Policy: State-dependence, Interaction and Complementarities," Working Papers 2022/05, Latvijas Banka.
    15. Czudaj, Robert L., 2023. "Anchoring of Inflation Expectations and the Role of Monetary Policy and Cost-Push Factors," MPRA Paper 119029, University Library of Munich, Germany.
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