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Monetary policy actions, macroeconomic data releases, and inflation expectations

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  • Kevin L. Kliesen
  • Frank A. Schmid

Abstract

This article analyzes how announced surprises in monetary policy actions and macroeconomic data releases affect the average rate of inflation that economic agents expect to prevail over the 10-year period following the surprise. The analysis also addresses the effect of Federal Reserve communication and surprises in monetary policy actions on perceived inflation risk over this 10-year period. The study shows that surprises in macroeconomic data releases and monetary policy actions indeed affect the expected rate of inflation. Further, there is evidence that surprises in monetary policy actions increase perceived inflation risk, whereas Federal Reserve communication reduces it.

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Bibliographic Info

Article provided by Federal Reserve Bank of St. Louis in its journal Review.

Volume (Year): (2004)
Issue (Month): May ()
Pages: 9-22

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Handle: RePEc:fip:fedlrv:y:2004:i:may:p:9-22:n:v.86no.3

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Keywords: Monetary policy ; Inflation (Finance) ; Macroeconomics;

References

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  1. Pierluigi Balduzzi & Edwin J. Elton & T. Clifton Green, 1996. "Economic News and the Yield Curve: Evidence From the U.S. Treasury Market," New York University, Leonard N. Stern School Finance Department Working Paper Seires, New York University, Leonard N. Stern School of Business- 96-13, New York University, Leonard N. Stern School of Business-.
  2. Refet S. Gürkaynak & Brian Sack & Eric Swanson, 2003. "The excess sensitivity of long-term interest rates: evidence and implications for macroeconomic models," Finance and Economics Discussion Series, Board of Governors of the Federal Reserve System (U.S.) 2003-50, Board of Governors of the Federal Reserve System (U.S.).
  3. Gurkaynak, Refet S. & Sack, Brian T. & Swanson, Eric P., 2007. "Market-Based Measures of Monetary Policy Expectations," Journal of Business & Economic Statistics, American Statistical Association, American Statistical Association, vol. 25, pages 201-212, April.
  4. William R. Emmons, 2000. "The information content of Treasury inflation-indexed securities," Review, Federal Reserve Bank of St. Louis, Federal Reserve Bank of St. Louis, issue Nov, pages 25-38.
  5. Michael J. Fleming & Eli M. Remolona, 1997. "What moves the bond market?," Economic Policy Review, Federal Reserve Bank of New York, Federal Reserve Bank of New York, issue Dec, pages 31-50.
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Citations

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Cited by:
  1. Liebermann, Joelle, 2011. "The Impact of Macroeconomic News on Bond Yields: (In)Stabilities over Time and Relative Importance," Research Technical Papers 7/RT/11, Central Bank of Ireland.
  2. Ullrich, Katrin, 2007. "Inflation Expectations of Experts and ECB Communication," ZEW Discussion Papers, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research 07-054, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  3. Amstad, Marlene & Fischer, Andreas M, 2004. "Sequential Information Flow and Real-Time Diagnosis of Swiss Inflation: Intra-Monthly DCF Estimates for a Low-Inflation Environment," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4627, C.E.P.R. Discussion Papers.
  4. Rosa, Carlo & Verga, Giovanni, 2007. "On the consistency and effectiveness of central bank communication: Evidence from the ECB," European Journal of Political Economy, Elsevier, vol. 23(1), pages 146-175, March.
  5. Kevin L. Kliesen, 2007. "How well does employment predict output?," Review, Federal Reserve Bank of St. Louis, Federal Reserve Bank of St. Louis, issue Sep, pages 433-446.

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