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Perceptions about Monetary Policy

Author

Listed:
  • Michael D. Bauer
  • Carolin Pflueger
  • Adi Sunderam

Abstract

We estimate perceptions about the Fed's monetary policy rule from micro data on professional forecasters. The perceived rule varies significantly over time, with important consequences for monetary policy and bond markets. Over the monetary policy cycle, easings are perceived to be quick and surprising, while tightenings are perceived to be gradual and data-dependent. Consistent with the idea that forecasters learn about the policy rule from policy decisions, the perceived monetary policy rule responds to high-frequency monetary policy surprises. Variation in the perceived rule impacts financial markets, explaining changes in the sensitivity of interest rates to macroeconomic announcements and affecting risk premia on long-term Treasury bonds. It also helps explain forecast errors for the future federal funds rate. We interpret these findings through the lens of a model with forecaster heterogeneity and learning from observed policy decisions.

Suggested Citation

  • Michael D. Bauer & Carolin Pflueger & Adi Sunderam, 2022. "Perceptions about Monetary Policy," NBER Working Papers 30480, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:30480
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    Cited by:

    1. Hack, Lukas & Istrefi, Klodiana & Meier, Matthias, 2023. "Identification of Systematic Monetary Policy," CEPR Discussion Papers 17999, C.E.P.R. Discussion Papers.
    2. Nadezhda Ivanova & Andrey Sinyakov & Konstantin Styrin, 2024. "Reassessing the Effectiveness and Transmission of Monetary Policy: Review of the Jackson Hole Economic Policy Symposium," Russian Journal of Money and Finance, Bank of Russia, vol. 83(4), pages 119-144, December.
    3. Hansen, Anne Lundgaard, 2024. "Time-varying variance decomposition of macro-finance term structure models," Journal of Empirical Finance, Elsevier, vol. 79(C).
    4. Vincenzo Cuciniello, 2024. "Market perceptions, monetary policy, and credibility," Temi di discussione (Economic working papers) 1449, Bank of Italy, Economic Research and International Relations Area.
    5. Sylvérie Herbert & Paul Hubert & Mathias Lé, 2025. "When does Monetary Policy Matter? Policy Stance vs. Term Premium News 1," Sciences Po Economics Publications (main) hal-05481635, HAL.
    6. Zhang, Dongyang & He, Yurun & Lu, Meiting, 2024. "Is energy firms' investment behavior more sensitive on corporate perception of monetary policy?," Energy Economics, Elsevier, vol. 136(C).
    7. Bertsch, Christoph & Hull, Isaiah & Lumsdaine, Robin L. & Zhang, Xin, 2025. "Central bank mandates and monetary policy stances: Through the lens of Federal Reserve speeches," Journal of Econometrics, Elsevier, vol. 249(PC).
    8. Rychalovska, Yuliya & Slobodyan, Sergey & Wouters, Raf, 2025. "Survey expectations, learning and inflation dynamics," European Economic Review, Elsevier, vol. 180(C).
    9. Richard K. Crump & Stefano Eusepi & Emanuel Moench & Bruce Preston, 2025. "How Do We Learn About the Long Run?," Staff Reports 1150, Federal Reserve Bank of New York.
    10. Filippo Busetto, 2024. "Asymmetric expectations of monetary policy," Bank of England working papers 1058, Bank of England.
    11. Kamps, Christophe & Bussière, Matthieu & Niessner, Birgit & Tristani, Oreste & Christoffel, Kai & Kapadia, Sujit & Ferrero, Giuseppe & Gilbert, Niels & Vlassopoulos, Thomas & Motto, Roberto & Gerke, R, 2025. "Report on monetary policy tools, strategy and communication," Occasional Paper Series 372, European Central Bank.
    12. Chenyu Hou & Tao Wang, 2025. "Uncovering Subjective Models from Survey Expectations," Staff Working Papers 25-31, Bank of Canada.
    13. Pflueger, Carolin, 2025. "Back to the 1980s or not? The drivers of inflation and real risks in Treasury bonds," Journal of Financial Economics, Elsevier, vol. 167(C).
    14. Eric Fischer & Rebecca McCaughrin & Saketh Prazad & Mark Vandergon, 2023. "Fed Transparency and Policy Expectation Errors: A Text Analysis Approach," Staff Reports 1081, Federal Reserve Bank of New York.
    15. Zeng, Wendy & Johnson, William & Davis, James D., 2024. "United States and Global Macroeconomic Projections to 2033," Economic Information Bulletin 342469, United States Department of Agriculture, Economic Research Service.
    16. Svec, Justin & Tortorice, Daniel L., 2025. "Asserting independence: Optimal monetary policy when the central bank and political authority disagree," Journal of Macroeconomics, Elsevier, vol. 85(C).
    17. Paul Hubert & Rose Portier, 2025. "The Signaling Effects of Tightening and Easing Monetary Policy," Sciences Po Economics Publications (main) hal-05097460, HAL.
    18. Yuliya Rychalovska & Sergey Slobodyan & Rafael Wouters, 2023. "Professional Survey Forecasts and Expectations in DSGE Models," CERGE-EI Working Papers wp766, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    19. Ben Knox & Yannick Timmer, 2024. "Stagflationary Stock Returns," CESifo Working Paper Series 11236, CESifo.
    20. Andreas Schrimpf & Markus Sihvonen, 2025. "Inflation and the joint bond-FX spanning puzzle," BIS Working Papers 1320, Bank for International Settlements.
    21. Alistair Macaulay & Wenting Song, 2022. "Narrative-Driven Fluctuations in Sentiment: Evidence Linking Traditional and Social Media," Economics Series Working Papers 973, University of Oxford, Department of Economics.

    More about this item

    JEL classification:

    • E03 - Macroeconomics and Monetary Economics - - General - - - Behavioral Macroeconomics
    • E4 - Macroeconomics and Monetary Economics - - Money and Interest Rates
    • E42 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Monetary Sytsems; Standards; Regimes; Government and the Monetary System
    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • G12 - Financial Economics - - General Financial Markets - - - Asset Pricing; Trading Volume; Bond Interest Rates

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