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The Effects of Monetary Policy: Theory with Measured Expectations

Author

Listed:
  • Christopher Roth

    (University of Cologne, ECONtribute)

  • Mirko Wiederholt

    (LMU Munich and Sciences Po, CESifo, CEPR)

  • Johannes Wohlfart

    (Department of Economics and CEBI, University of Copenhagen, CESifo, Danish Finance Institute)

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.

Suggested Citation

  • Christopher Roth & Mirko Wiederholt & Johannes Wohlfart, 2023. "The Effects of Monetary Policy: Theory with Measured Expectations," ECONtribute Discussion Papers Series 217, University of Bonn and University of Cologne, Germany.
    • Handle: RePEc:ajk:ajkdps:217
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    File URL: https://www.econtribute.de/RePEc/ajk/ajkdps/ECONtribute_217_2023.pdf
    File Function: First version, 2023
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    Citations

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    Cited by:

    1. Oliver Pfauti, 2023. "The Inflation Attention Threshold and Inflation Surges," Papers 2308.09480, arXiv.org, revised Sep 2023.
    2. Stephane Bonhomme & Angela Denis, 2023. "Estimating Individual Responses when Tomorrow Matters," Papers 2310.09105, arXiv.org, revised Dec 2023.
    3. Isabel Gödl-Hanisch & Manuel Menkhoff, 2023. "Firms’ Pass-Through Dynamics: A Survey Approach," CESifo Working Paper Series 10520, CESifo.

    More about this item

    Keywords

    Monetary Policy; Expectation Formation; Aggregate Consumption;
    All these keywords.

    JEL classification:

    • D12 - Microeconomics - - Household Behavior - - - Consumer Economics: Empirical Analysis
    • D14 - Microeconomics - - Household Behavior - - - Household Saving; Personal Finance
    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions

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