How Did Unconventional Monetary Policy Affect Economic Forecasts?

Abstract

We study how unconventional monetary policy announcements affected professional forecasters' predictions of bond rates, gross domestic product growth and inflation using data from the monthly survey by the Wall Street Journal. We find that unconventional monetary policy (UMP) announcements moved predicted bond rates in the direction the Fed intended. UMP announcements had differential impacts on forecasters' predictions; they also tended to move growth and inflation predictions in directions opposite those the Fed intended due to Fed information effects. A policy implication of our study is that the Fed should communicate economic projections to the public separately from monetary policy announcements to mitigate Fed information effects. (JEL E52, E58)