scholarly journals Monetary Policy Surprises and Inflation Expectation Dispersion

2020 ◽  
Vol 20 (252) ◽  
Author(s):  
Bertrand Gruss ◽  
Sandra Lizarazo ◽  
Francesco Grigoli
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Rational Expectations ◽  
The United States ◽  
Inflation Expectations ◽  
Federal Funds Rate ◽  
Inflation Expectation ◽  
Inflation Forecasts ◽  
Effect Of Monetary Policy ◽  
Information Rigidity

Anchoring of inflation expectations is of paramount importance for central banks’ ability to deliver stable inflation and minimize price dispersion. Relying on daily interest rates and inflation forecasts from major financial institutions in the United States, we calculate monetary policy surprises of individual analysts as the unexpected changes in the federal funds rate before the meetings of the Federal Reserve Board. We then assess the effect of monetary policy surprises on the dispersion of inflation expectations, a proxy for the extent of anchoring, which is based on the same analysts’ inflation projections submit-ted after the Fed meetings. With an identification strategy that hinges on a tight window around the Fed meetings, we find that monetary policy surprises lead to an increase in the dispersion of inflation expectations up to nine months after the policy meeting. We rationalize these results with a partial equilibrium model that features rational expectations and sticky information. When we allow the degree of information rigidity to depend on the realization of firm-specific shocks, the theoretical results are qualitatively consistent and quantitatively close to the empirical evidence.

scholarly journals Bank Revolving Credit as a Channel of Monetary Policy Targeting Interest Rates

2021 ◽  
Vol 13 (2) ◽  
pp. 147-160
Author(s):  
MUJTABA ZIA ◽  
◽  
JENNIFER LOGAN ◽  
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Instrumental Variable ◽  
Credit Card ◽  
Credit Cards ◽  
The United States ◽  
Federal Funds ◽  
Federal Funds Rate ◽  
Consumer Loans ◽  
Revolving Credit

This paper investigates the implication of bank revolving credit in the form of credit card loans as a channel of monetary policy targeting the federal funds rate since 1980. Credit cards have become increasingly popular and a necessity for many transactions and purchases in the United States. The revolving credit nature of credit card loans makes them an instant tool for consumer loans that can facilitate consumption. Using instrumental variable and two-stage least squares (2SLS) methodology, we analyze the implication of credit card loans to modern monetary policy that targets interest rates.

scholarly journals Spillovers of US Conventional and Unconventional Monetary Policies to Russian Financial Markets

2018 ◽  
Vol 10 (2) ◽  
pp. 14 ◽  
Author(s):  
Shigeki Ono
Keyword(s):  
Monetary Policy ◽  
Financial Markets ◽  
Interest Rates ◽  
Stock Prices ◽  
Monetary Policy Shocks ◽  
Federal Funds Rate ◽  
Monetary Policies ◽  
Endogenous Variables ◽  
Policy Shocks ◽  
Monetary Policy Shock

This paper investigates the spillovers of US conventional and unconventional monetary policies to Russian financial markets using VAR-X models. Impulse responses to an exogenous Federal Funds rate shock are assessed for all the endogenous variables. The empirical results show that both conventional and unconventional tightening monetary policy shocks decrease stock prices whereas an easing monetary policy shock does not increase stock prices. Moreover, the results suggest that an unconventional tightening monetary policy shock increases Russian interest rates and decreases oil prices, implying reduced liquidity in international financial markets.

scholarly journals Can inflation forecast and monetary policy path be really useful? The case of the Czech Republic

Equilibrium ◽  
2015 ◽  
Vol 10 (3) ◽  
pp. 9 ◽  
Author(s):  
Magdalena Szyszko ◽  
Karolina Tura
Keyword(s):  
Decision Making ◽  
Monetary Policy ◽  
Qualitative Analysis ◽  
Central Bank ◽  
Quantitative Methods ◽  
Inflation Expectations ◽  
The Czech Republic ◽  
Inflation Forecasts ◽  
National Bank ◽  
Parametric Statistics

Producing and revealing inflation forecast is believed to be the best way of implementing a forward-looking monetary policy. The article focuses on inflation forecast targeting (IFT) at the Czech National Bank (CNB) in terms of its efficiency in shaping consumers’ inflation expectations. The goal of the study is to verify the accuracy of the inflation forecasts, and their influence on inflation expectations. The research is divided into four stages. At the first stage, central bank credibility is examined. At the second stage – accuracy of the inflation forecasts. The next step of the research covers a qualitative analysis of IFT implementation. Finally, the existence of the interdependences of inflation forecast, optimal policy paths and inflation expectations is analyzed. Credibility of the central bank, accuracy of the forecast and decision-making procedures focused on the forecast are the premises for the existence of relationship between forecasts and expectations. The research covers the period from July 2002 – till the end of 2013. Its methodology includes qualitative analysis of decision-making of the CNB, quantitative methods (Kia and Patron formula, MAE forecasts errors, quantification of expectations, non-parametric statistics). The results confirm the existence of interdependences between inflation forecasts and expectations of moderate strength. The preconditions of such interdependences are partially fulfilled. The research opens the field for cross-country comparisons and for quantification of IFT implementation.

scholarly journals Inflation Forecasts: Are Market-Based and Survey-Based Measures Informative?

2017 ◽  
Vol 9 (1) ◽  
pp. 171 ◽  
Author(s):  
Magdalena Grothe ◽  
Aidan Meyler
Keyword(s):  
United States ◽  
Euro Area ◽  
Predictive Power ◽  
The United States ◽  
Inflation Expectations ◽  
Survey Of Professional Forecasters ◽  
Inflation Forecasts

This paper analyses the predictive power of market-based and survey-based inflation expectations for actual inflation. We use the data on inflation swaps and the forecasts from the Survey of Professional Forecasters for the euro area and the United States. The results show that both market-based and survey-based measures have a non-negligible predictive power for inflation developments, as compared to statistical benchmark models. Therefore, for horizons of one and two years ahead, market-based and survey-based inflation expectations actually convey information on future inflation developments.

scholarly journals Deleveraging and Monetary Policy: Japan Since the 1990s and the United States Since 2007

2012 ◽  
Vol 26 (3) ◽  
pp. 177-202 ◽  
Author(s):  
Kazuo Ueda
Keyword(s):  
United States ◽  
Monetary Policy ◽  
Great Recession ◽  
Federal Reserve ◽  
The United States ◽  
Federal Funds ◽  
Federal Funds Rate ◽  
The Great Recession ◽  
Policy Responses ◽  
The U.S

As the U.S. economy works through a sluggish recovery several years after the Great Recession technically came to an end in June 2009, it can only look with horror toward Japan's experience of two decades of stagnant growth since the early 1990s. In contrast to Japan, U.S. policy authorities responded to the financial crisis since 2007 more quickly. Surely, they learned from Japan's experience. I will begin by describing how Japan's economic situation unfolded in the early 1990s and offering some comparisons with how the Great Recession unfolded in the U.S. economy. I then turn to the Bank of Japan's policy responses to the crisis and again offer some comparisons to the Federal Reserve. I will discuss the use of both the conventional interest rate tool—the federal funds rate in the United States, and the “call rate” in Japan—and nonconventional measures of monetary policy and consider their effectiveness in the context of the rest of the financial system.

scholarly journals Monetary policy transparency and financial market forecasts in South Africa

2008 ◽  
Vol 2 (1) ◽  
pp. 31-56 ◽  
Author(s):  
Vivek Arora
Keyword(s):  
South Africa ◽  
Monetary Policy ◽  
Interest Rate ◽  
Interest Rates ◽  
Empirical Work ◽  
Economic Benefits ◽  
Cross Sectional ◽  
Inflation Forecasts ◽  
Reserve Bank ◽  
Monetary Policy Transparency

The transparency of monetary policy in South Africa has increased substantially since the end of the 1990s. But little empirical work has been done to examine the economic benefits of the increased transparency. This paper shows that, in recent years, South African private sector forecasters have become better able to forecast interest rates, are less surprised by reserve bank policy announcements, and are less diverse in the cross-sectional variety of their interest rate forecasts. In addition, there is some evidence that the accuracy of inflation forecasts has increased. The improvements in interest rate and inflation forecasts have exceeded those in real output forecasts, suggesting that increases in monetary policy transparency are likely to have played a role.

scholarly journals Testes da Hipótese de Expectativas na Estrutura a Termo das Taxas de Juros Brasileiras

2003 ◽  
Vol 1 (1) ◽  
pp. 19
Author(s):  
Benjamin Miranda Tabak ◽  
Sandro Canesso de Andrade
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Term Structure ◽  
Risk Premium ◽  
Rational Expectations ◽  
Yield Curve ◽  
Single Equation ◽  
Expectations Hypothesis ◽  
Macro Modeling ◽  
Daily Data

We test the Expectations Hypothesis (EH) plus Rational Expectations (RE) in the Brazilian term-structure of interest rates, using maturities ranging from 1 month to 12 months, and daily data from 1995 to 2000. We rely on two methodologies based on single-equation regressions. Our results indicate a rejection of the EH plus RE, specially at the longer maturity. This may have important implications for the rational expectations macro-modeling currently being used to evaluate the conduct of monetary policy in Brazil. We also show the risk premium in the yield curve are positively related to the covered interest rate differential and to the volatility of interest rates.

scholarly journals The Analysis of Monetary Transmission Mechaniscm by Expectation Patterns in Influencing the Inflation

2018 ◽  
Vol 6 (4) ◽  
pp. 412-419
Author(s):  
Ilma Ulfatul
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Inflation Targeting ◽  
Transmission Mechanism ◽  
Output Gap ◽  
Inflation Expectations ◽  
Short Term ◽  
Inflation Expectation ◽  
Policy Transmission ◽  
Monetary Policy Transmission Mechanism

Bank Indonesia set inflation targeting framework from 1 July 2005 by publicizing the inflation target or forward inflation to the public. However, the phenomenon show that most of the actual inflation of Indonesia is not in accordance with inflation targeting that have been set by Bank Indonesia. The purpose of this research is to analyze and know the flow of monetary policy transmission mechanism of expectation line in influencing inflation, to analyze and to know the influence of long-term and short-term and the shocks of interest rate, exchange rate, inflation expectations, output gap and GDP on inflation in Indonesia. The variables used in this research are BI Rate, Exchange Rate, Inflation Expectation, Output Gap, GDP and Inflation. The data used in this research is monthly data of time series from January 2006 until June 2016 which come from Bank Indonesia (BI) and Central Statistic Agency (BPS). The method used in this research is Vector Error Correction Model (VECM). The result of research indicates that: The flow of monetary policy transmission mechanism of expectation line in influencing inflation in Indonesia runs continuously with indicated the existence of two-way relationship between exchange rate and inflation variable, in the short term, the BI Rate, Exchange Rate and Output Gap are significant and positively affect inflation, inflation expectation variables are significant and affect inflation and GDP variable is insignificant to inflation in Indonesia, while in long run variable affecting inflation rate are BI Rate and inflation expectations, based on the variance decomposits result shows that the biggest variant contributing to inflation in Indonesia is the BI Rate.

Central Bank Communication

2019 ◽  
pp. 230-262
Author(s):  
Jakob de Haan ◽  
Jan-Egbert Sturm
Keyword(s):  
Monetary Policy ◽  
Interest Rates ◽  
Central Banks ◽  
Inflation Expectations ◽  
Short Term ◽  
The Public ◽  
Central Bank Communication ◽  
Forward Guidance ◽  
The World ◽  
Future Direction

Many central banks in the world nowadays regard their external communication as an important tool to achieve their goals. This chapter provides an overview of the different ways in which central banks inform the public about the future direction of monetary policy and how successful they have been in recent years. Forward guidance is either part of a monetary policy strategy in which an explicit inflation target is targeted or is part of a strategy that attempts to circumvent the effective lower bound regarding the nominal interest rate. In both cases, forward guidance attempts to influence longer-term interest rates and inflation expectations through the expected future short-term interest rates.

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