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Ambiguous Policy Announcements

Author

Listed:
  • Claudio Michelacci

    (EIEF and CEPR)

  • Luigi Paciello

    (EIEF and CEPR)

Abstract

We study the effects of an announcement of a future shift in monetary policy when agents face Knightian uncertainty about the commitment capacity of the monetary authority. Households are ambiguity-averse and are differentially exposed to inflation due to differences in wealth. In response to the announcement of a future loosening in monetary policy, only wealthy households (creditors) will act as if the announcement will be fully implemented, due to the potential loss of wealth from the prospective policy easing.And when creditors believe the announcement more than debtors, their expected wealth losses are larger than the wealth gains that debtors expect. Hence the economy responds as if aggregate net wealth falls, which attenuates the effects of the announcement. We study the quantitative properties of the model in a liquidity trap after allowing for a realistic characterization of households’ wealth portfolio.

Suggested Citation

  • Claudio Michelacci & Luigi Paciello, 2017. "Ambiguous Policy Announcements," EIEF Working Papers Series 1701, Einaudi Institute for Economics and Finance (EIEF), revised Dec 2017.
    • Handle: RePEc:eie:wpaper:1701
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    References listed on IDEAS

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    Cited by:

    1. Karantounias, Anastasios G., 2023. "Doubts about the model and optimal policy," Journal of Economic Theory, Elsevier, vol. 210(C).
    2. Philippe Andrade & Gaetano Gaballo & Eric Mengus & Benoît Mojon, 2019. "Forward Guidance and Heterogeneous Beliefs," American Economic Journal: Macroeconomics, American Economic Association, vol. 11(3), pages 1-29, July.
    3. Haberis, Alex & Harrison, Richard & Waldron, Matt, 2019. "Uncertain policy promises," European Economic Review, Elsevier, vol. 111(C), pages 459-474.
    4. Ehrmann, Michael & Gaballo, Gaetano & Hoffmann, Peter & Strasser, Georg, 2019. "Can more public information raise uncertainty? The international evidence on forward guidance," Journal of Monetary Economics, Elsevier, vol. 108(C), pages 93-112.
    5. Chen, Liangyuan & Lin, Jianhao & Wang, Xia & Zhu, Zixiang, 2025. "The real effect of China's narrative Central Bank Communication," China Economic Review, Elsevier, vol. 94(PC).
    6. Dmitri V. Vinogradov & Michael J. Lamla & Yousef Makhlouf, 2024. "Survey-based expectations and uncertainty attitudes," Working Papers 2024_02, Business School - Economics, University of Glasgow.
    7. Zhang, Yifan & Wang, Xinyue & Zhang, Xinwen & Zhu, Dandan, 2026. "Policy uncertainty and optimal provision of public information," Economic Modelling, Elsevier, vol. 158(C).
    8. Cosmin L. Ilut & Martin Schneider, 2022. "Modeling Uncertainty as Ambiguity: a Review," NBER Working Papers 29915, National Bureau of Economic Research, Inc.
    9. Andrade, Philippe & Gautier, Erwan & Mengus, Eric, 2023. "What matters in households’ inflation expectations?," Journal of Monetary Economics, Elsevier, vol. 138(C), pages 50-68.
    10. Alex Haberis & Richard Harrison & Matthew Waldron, 2017. "Uncertain forward guidance," Bank of England Staff Working Paper series 654, Bank of England.
    11. Hikaru Saijo, 2020. "Redistribution And Fiscal Uncertainty Shocks," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 61(3), pages 1073-1095, August.
    12. Alistair Macaulay & Chenchuan Shi, 2026. "Ambiguity Aversion, Portfolio Choice, and Life Expectancy," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 67(2), pages 633-655, May.
    13. Mirela Miescu, 2022. "Forward guidance shocks," Working Papers 352591340, Lancaster University Management School, Economics Department.
    14. Alessandro Casini & Adam McCloskey, 2024. "Identification and Estimation of Causal Effects in High-Frequency Event Studies," Papers 2406.15667, arXiv.org, revised Jul 2025.
    15. Claudio Michelacci & Luigi Paciello, 2020. "Aggregate Risk or Aggregate Uncertainty? Evidence from UK Households," EIEF Working Papers Series 2006, Einaudi Institute for Economics and Finance (EIEF), revised Apr 2020.
    16. Han, Han & Liu, Tao & Lu, Dong, 2026. "The announcement effect on international currency choices: Theory and evidence," Journal of International Money and Finance, Elsevier, vol. 160(C).
    17. Barthélemy, Jean & Mengus, Eric, 2018. "The signaling effect of raising inflation," Journal of Economic Theory, Elsevier, vol. 178(C), pages 488-516.

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