Skip to main content

Monetary Policy Shocks and Consumer Inflation Expectations: An Empirical Study

Date created
Economists have become very interested in the relationship between monetary policy and inflation expectations. However, most research has focused on professional forecasters rather than consumers' expectations. This paper explores interactions between monetary policy and consumer expectations. Specifically, we estimate the impact of monetary policy shocks on consumer expectations. Using a simple linear regression model and data from the Michigan Survey of Consumers, we found somewhat surprising results. Namely, that consumers adjust their expectations positively in response to an unexpected tightening of monetary policy. This suggests the existence of the "signalling channel" of monetary policy. We control for a host of macroeconomic and demographic variables, and our results are consistent across income and education groups. In line with previous research, we found greater heterogeneity in expectations for lower-income and lower-educated groups. Our research challenges conventional thinking regarding the influence of monetary policy on inflation Expectations, and suggests that this relationship is more complex.
Copyright statement
Copyright is held by the author.
This thesis may be printed or downloaded for non-commercial research and scholarly purposes.
Scholarly level
Member of collection
Download file Size
etd9669_ANarayan.pdf 710.25 KB

Views & downloads - as of June 2023

Views: 0
Downloads: 0