Central bank information and the effects of monetary shocks
Does the effect of monetary policy depend on the macroeconomic information released by the central bank? Because differences between central bank’s and private agents’ information sets affect private agents’ interpretation of policy decisions, this paper aims to investigate whether the publication of macroeconomic information by the central bank modifies private responses to monetary policy. We assess the non-linear effects of monetary shocks conditional on the Bank of England’s macroeconomic projections on UK private inflation expectations. We find that inflation projections modify the impact of monetary shocks. When contractionary monetary shocks are interacted with positive(negative) projections, the negative effect of policy on inflation expectations is amplified (reduced). This suggests that providing guidance about central bank future expected inflation helps private agents’ information processing, and therefore changes their response to policy decisions.
|Date of creation:||25 Aug 2017|
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- Long Chen & David A. Lesmond & Jason Wei, 2007. "Corporate Yield Spreads and Bond Liquidity," Journal of Finance, American Finance Association, vol. 62(1), pages 119-149, February.
- Jean-Sébastien Fontaine & René Garcia, 2012. "Bond Liquidity Premia," Review of Financial Studies, Society for Financial Studies, vol. 25(4), pages 1207-1254.
- Grace Xing Hu & Jun Pan & Jiang Wang, 2013.
"Noise as Information for Illiquidity,"
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American Finance Association, vol. 68(6), pages 2341-2382, December.
- Xing Hu & Jun Pan & Jiang Wang, 2010. "Noise as Information for Illiquidity," NBER Working Papers 16468, National Bureau of Economic Research, Inc.
- Joyce, Michael A.S. & Lildholdt, Peter & Sorensen, Steffen, 2010. "Extracting inflation expectations and inflation risk premia from the term structure: A joint model of the UK nominal and real yield curves," Journal of Banking & Finance, Elsevier, vol. 34(2), pages 281-294, February.Full references (including those not matched with items on IDEAS)
- Joyce, Michael & Lildholdt, Peter & Sorensen, Steffen, 2009. "Extracting inflation expectations and inflation risk premia from the term structure: a joint model of the UK nominal and real yield curves," Bank of England working papers 360, Bank of England.
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