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Do People Understand Monetary Policy?

Author

Listed:
  • Carlos Carvalho

    (Department of Economics PUC-Rio)

  • Fernanda Nechio

    (Federal Reserve Bank of San Francisco)

Abstract

We combine questions from the Michigan Survey about the future path of prices, interest rates, and unemployment to investigate whether households are aware of the basic features of U.S. monetary policy. Our Öndings support the view that at least some groups of households form their expectations about the future path of interest rates, ináation, and unemployment in a way that is consistent with those features. However, we also document a large degree of variation in the pattern of household responses over the business cycle. In particular, the negative relationship between unemployment and interest rates that is apparent in the data only shows up unequivocally in householdsíanswers during periods of labor market weakness.

Suggested Citation

  • Carlos Carvalho & Fernanda Nechio, 2013. "Do People Understand Monetary Policy?," Textos para discussão 618, Department of Economics PUC-Rio (Brazil).
  • Handle: RePEc:rio:texdis:618
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    References listed on IDEAS

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