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Average Inflation Targeting and Household Expectations

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  • Olivier Coibion
  • Yuriy Gorodnichenko
  • Edward S. Knotek

Abstract

Using a daily survey of U.S. households, we study how the Federal Reserve’s announcement of its new strategy of average inflation targeting affected households’ expectations. Starting with the day of the announcement, there is a very small uptick in the minority of households reporting that they had heard news about monetary policy relative to prior to the announcement, but this effect fades within a few days. Those hearing news about the announcement do not seem to have understood the announcement: they are no more likely to correctly identify the Fed’s new strategy than others, nor are their expectations different. When we provide randomly selected households with pertinent information about average inflation targeting, their expectations still do not change in a different way than when households are provided with information about traditional inflation targeting.

Suggested Citation

  • Olivier Coibion & Yuriy Gorodnichenko & Edward S. Knotek, 2020. "Average Inflation Targeting and Household Expectations," Working Papers 202026, Federal Reserve Bank of Cleveland.
    • Handle: RePEc:fip:fedcwq:88730
    DOI: 10.26509/frbc-wp-202026
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    References listed on IDEAS

    as
    1. Daniel J. Lewis & Christos Makridis & Karel Mertens, 2019. "Do Monetary Policy Announcements Shift Household Expectations?," Staff Reports 897, Federal Reserve Bank of New York.
    2. Olivier Armantier & Scott Nelson & Giorgio Topa & Wilbert van der Klaauw & Basit Zafar, 2016. "The Price Is Right: Updating Inflation Expectations in a Randomized Price Information Experiment," The Review of Economics and Statistics, MIT Press, vol. 98(3), pages 503-523, July.
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    More about this item

    Keywords

    Inflation targeting; inflation expectations; surveys; communication; randomized controlled trial;

    JEL classification:

    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

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