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Monetary policy rules and opinionated markets

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  • Jia, Pengfei
  • Shen, Haopeng
  • Zheng, Shikun

Abstract

The Fed and the market often disagree about the path of interest rates. We measure this disagreement using gaps between the Greenbook and the Blue Chip forecasts for future three-month Treasury rates. We decompose this disagreement using the Blinder–Oaxaca decomposition. Our empirical results show that different perceptions about the Taylor rule can contribute substantially to the disagreement.

Suggested Citation

  • Jia, Pengfei & Shen, Haopeng & Zheng, Shikun, 2023. "Monetary policy rules and opinionated markets," Economics Letters, Elsevier, vol. 223(C).
    • Handle: RePEc:eee:ecolet:v:223:y:2023:i:c:s0165176523000204
    DOI: 10.1016/j.econlet.2023.110995
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    References listed on IDEAS

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    Cited by:

    1. Donato Masciandaro, 2023. "How Elastic and Predictable Money Should Be: Flexible Monetary Policy Rules from the Great Moderation to the New Normal Times (1993-2023)," BAFFI CAREFIN Working Papers 23196, BAFFI CAREFIN, Centre for Applied Research on International Markets Banking Finance and Regulation, Universita' Bocconi, Milano, Italy.

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    More about this item

    Keywords

    Expectation formation; Monetary policy; The Taylor rule; Opinionated markets; The Blinder–Oaxaca decomposition;
    All these keywords.

    JEL classification:

    • E47 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Forecasting and Simulation: Models and Applications
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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