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Do firm expectations respond to Monetary Policy announcements?

Author

Listed:
  • Federico Di Pace
  • Giacomo Mangiante
  • Riccardo Masolo

    (Università Cattolica del Sacro Cuore
    Dipartimento di Economia e Finanza, Università Cattolica del Sacro Cuore)

Abstract

We study whether firms’ expectations react to the Bank of England’s monetary policy announcements by comparing the responses to the Decision Maker Panel (DMP) survey filed immediately before and after a Monetary Policy Committee (MPC) meeting. On the one hand, we find that firms’ expectations and uncertainty about their own business for the most part do not respond to high-frequency monetary policy surprises. On the other hand, announced changes in the monetary policy rate induce firms to revise their price expectations, with rate hikes resulting in a reduction in price expectations and the uncertainty surrounding them.

Suggested Citation

  • Federico Di Pace & Giacomo Mangiante & Riccardo Masolo, 2023. "Do firm expectations respond to Monetary Policy announcements?," DISCE - Working Papers del Dipartimento di Economia e Finanza def127, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    • Handle: RePEc:ctc:serie1:def127
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    File URL: http://dipartimenti.unicatt.it/economia-finanza-def127.pdf
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    References listed on IDEAS

    as
    1. Lamla, Michael J. & Vinogradov, Dmitri V., 2019. "Central bank announcements: Big news for little people?," Journal of Monetary Economics, Elsevier, vol. 108(C), pages 21-38.
    2. Kuttner, Kenneth N., 2001. "Monetary policy surprises and interest rates: Evidence from the Fed funds futures market," Journal of Monetary Economics, Elsevier, vol. 47(3), pages 523-544, June.
    3. Refet S Gürkaynak & Brian Sack & Eric Swanson, 2005. "Do Actions Speak Louder Than Words? The Response of Asset Prices to Monetary Policy Actions and Statements," International Journal of Central Banking, International Journal of Central Banking, vol. 1(1), May.
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    Cited by:

    1. Valentina Colombo & Alessia Paccagnini, 2024. "Uncertainty and the Federal Reserve’s Balance Sheet Monetary Policy," DISCE - Working Papers del Dipartimento di Economia e Finanza def131, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
    2. Russell Davidson & Andrea Monticini, 2023. "Bootstrap Performance with Heteroskedasticity," DISCE - Working Papers del Dipartimento di Economia e Finanza def130, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).

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    More about this item

    Keywords

    Central bank communication; firm expectations; high-frequency identification; survey data.;
    All these keywords.

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • 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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