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Perceptions About Monetary Policy

Author

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  • Michael D Bauer
  • Carolin E Pflueger
  • Adi Sunderam

Abstract

We estimate perceptions about the Federal Reserve’s monetary policy rule from panel data on professional forecasts of interest rates and macroeconomic conditions. The perceived dependence of the federal funds rate on economic conditions varies substantially over time, in particular over the monetary policy cycle. Forecasters update their perceptions about the Fed’s policy rule in response to monetary policy actions, measured by high-frequency interest rate surprises, suggesting that they have imperfect information about the rule. Monetary policy perceptions matter for monetary transmission, as they affect the sensitivity of interest rates to macroeconomic news, term premia in long-term bonds, and the response of the stock market to monetary policy surprises. A simple learning model with forecaster heterogeneity and incomplete information about the policy rule motivates and explains our empirical findings.

Suggested Citation

  • Michael D Bauer & Carolin E Pflueger & Adi Sunderam, 2024. "Perceptions About Monetary Policy," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 139(4), pages 2227-2278.
    • Handle: RePEc:oup:qjecon:v:139:y:2024:i:4:p:2227-2278.
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    File URL: http://hdl.handle.net/10.1093/qje/qjae021
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    Cited by:

    1. Hack, Lukas & Istrefi, Klodiana & Meier, Matthias, 2023. "Identification of Systematic Monetary Policy," CEPR Discussion Papers 17999, C.E.P.R. Discussion Papers.
    2. Chenyu Hou & Tao Wang, 2025. "Uncovering Subjective Models from Survey Expectations," Staff Working Papers 25-31, Bank of Canada.
    3. Nadezhda Ivanova & Andrey Sinyakov & Konstantin Styrin, 2024. "Reassessing the Effectiveness and Transmission of Monetary Policy: Review of the Jackson Hole Economic Policy Symposium," Russian Journal of Money and Finance, Bank of Russia, vol. 83(4), pages 119-144, December.
    4. Pflueger, Carolin, 2025. "Back to the 1980s or not? The drivers of inflation and real risks in Treasury bonds," Journal of Financial Economics, Elsevier, vol. 167(C).
    5. Hack, Lukas & Istrefi, Klodiana & Meier, Matthias, 2024. "The Systematic Origins of Monetary Policy Shocks," CEPR Discussion Papers 19063, C.E.P.R. Discussion Papers.
    6. Eric Fischer & Rebecca McCaughrin & Saketh Prazad & Mark Vandergon, 2023. "Fed Transparency and Policy Expectation Errors: A Text Analysis Approach," Staff Reports 1081, Federal Reserve Bank of New York.
    7. Zeng, Wendy & Johnson, William & Davis, James D., 2024. "United States and Global Macroeconomic Projections to 2033," Economic Information Bulletin 342469, United States Department of Agriculture, Economic Research Service.
    8. Hansen, Anne Lundgaard, 2024. "Time-varying variance decomposition of macro-finance term structure models," Journal of Empirical Finance, Elsevier, vol. 79(C).
    9. Vandeweyer, Quentin & Yang, Minghao & Yannelis, Constantine, 2026. "Discount factors and monetary policy: Evidence from dual-listed stocks," Journal of Financial Economics, Elsevier, vol. 175(C).
    10. Vincenzo Cuciniello, 2024. "Market perceptions, monetary policy, and credibility," Temi di discussione (Economic working papers) 1449, Bank of Italy, Economic Research and International Relations Area.
    11. Svec, Justin & Tortorice, Daniel L., 2025. "Asserting independence: Optimal monetary policy when the central bank and political authority disagree," Journal of Macroeconomics, Elsevier, vol. 85(C).
    12. Sylvérie Herbert & Paul Hubert & Mathias Lé, 2025. "When does Monetary Policy Matter? Policy Stance vs. Term Premium News 1," Sciences Po Economics Publications (main) hal-05481635, HAL.
    13. Zhang, Dongyang & He, Yurun & Lu, Meiting, 2024. "Is energy firms' investment behavior more sensitive on corporate perception of monetary policy?," Energy Economics, Elsevier, vol. 136(C).
    14. Zhu, Dandan & Wang, Xiangdong & Zhang, Yifan, 2025. "Narrative monetary policy expectation in China," China Economic Review, Elsevier, vol. 94(PB).
    15. Paul Hubert & Rose Portier, 2025. "The Signaling Effects of Tightening and Easing Monetary Policy," Sciences Po Economics Publications (main) hal-05097460, HAL.
    16. Bertsch, Christoph & Hull, Isaiah & Lumsdaine, Robin L. & Zhang, Xin, 2025. "Central bank mandates and monetary policy stances: Through the lens of Federal Reserve speeches," Journal of Econometrics, Elsevier, vol. 249(PC).
    17. Yuliya Rychalovska & Sergey Slobodyan & Rafael Wouters, 2023. "Professional Survey Forecasts and Expectations in DSGE Models," CERGE-EI Working Papers wp766, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    18. Rychalovska, Yuliya & Slobodyan, Sergey & Wouters, Raf, 2025. "Survey expectations, learning and inflation dynamics," European Economic Review, Elsevier, vol. 180(C).
    19. Richard K. Crump & Stefano Eusepi & Emanuel Moench & Bruce Preston, 2025. "How Do We Learn About the Long Run?," Staff Reports 1150, Federal Reserve Bank of New York.
    20. Ben Knox & Yannick Timmer, 2024. "Stagflationary Stock Returns," CESifo Working Paper Series 11236, CESifo.
    21. Filippo Busetto, 2024. "Asymmetric expectations of monetary policy," Bank of England working papers 1058, Bank of England.
    22. Kamps, Christophe & Bussière, Matthieu & Niessner, Birgit & Tristani, Oreste & Christoffel, Kai & Kapadia, Sujit & Ferrero, Giuseppe & Gilbert, Niels & Vlassopoulos, Thomas & Motto, Roberto & Gerke, R, 2025. "Report on monetary policy tools, strategy and communication," Occasional Paper Series 372, European Central Bank.
    23. Andreas Schrimpf & Markus Sihvonen, 2025. "Inflation and the joint bond-FX spanning puzzle," BIS Working Papers 1320, Bank for International Settlements.
    24. Andrei, Daniel & Hasler, Michael, 2025. "Investor learning about monetary-policy transmission and the stock market," Journal of Financial Economics, Elsevier, vol. 173(C).
    25. Macaulay, Alistair & Song, Wenting, 2022. "Narrative-Driven Fluctuations in Sentiment: Evidence Linking Traditional and Social Media," MPRA Paper 113620, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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