Are survey expectations theory-consistent? The role of central bank communication and news

Abstract

In this paper we analyze whether central bank communication can facilitate the understanding of key economic concepts. Using survey data for consumers and professionals, we calculate how many of them have expectations consistent with the Fisher Equation, the Taylor rule and the Phillips curve and test, by accounting for three different communication channels, whether central banks can influence those. A substantial share of participants has expectations consistent with the Fisher equation, followed by the Taylor rule and the Phillips curve. We show that having theory-consistent expectations is beneficial, as it improves the forecast accuracy. Furthermore, consistency is time varying. Exploring this time variation, we provide evidence that central bank communication as well as news on monetary policy can facilitate the understanding of those concepts and thereby improve the efficacy of monetary policy.

The Effects of Oil Supply and Demand Shocks on U.S. Consumer Sentiment

“…Consistently, U.S. consumers expect a statistically significant reduction in their real household income during the first year, whereas unemployment expectations are virtually unaffected over the entire 2-year horizon. On average across households, the survey responses are thus consistent with an "income Euler equation" (see also Dräger, Lamla, and Pfajfar 2016). Similarly, perceived vehicle and house buying conditions deteriorate significantly in response to a positive other oil demand shock, dropping by −2.4 and −2.0 index points after 3 and 2 months, respectively.…”

Inflation Expectations and Monetary Policy Surprises*

“…As Yellen (2016) has pointed out, "[an] unresolved issue concerns whose inflation expectations -those of consumers, firms, or investors -are most relevant for wage and price setting, a point on which theory provides no clear-cut guidance." In focusing on consumers' expectations from survey data, our paper fits closely into a new and growing body of literature studying how people process macroeconomic developments with survey data (see Coibion and Gorodnichenko, 2012;Carvalho and Nechio, 2014;Dräger et al, 2016;Geiger and Scharler, 2016;Geiger and Zachariadis, 2019). 8 Having estimated conventional monetary surprises based on realizations of macrovariables and beliefs-based surprises based on consumers' expectations, we then investigate in the second stage of our empirical analysis how these affect the inflation expectations of different types of consumers, depending on their income, employment status, and age, before and after the crisis.…”

Explaining Disagreement on Interest Rates in a Taylor‐Rule Setting

“…calculate the fractions of consistent answers of consumers using the US University of Michigan Surveys of Consumers across demographic groups, as well as for professionals using the SPF. Similarly, Dräger et al (2016) use individual-level data for consumers as well as professional forecasters to identify the amount of people who form expectations consistent with a Taylor-rule concept, the Phillips curve, and the Fisher equation. Both studies find that roughly 50 percent of consumers as well as professional forecasters predict interest rates with a Taylor-rule concept in mind.…”