Working Paper Revision

Do Monetary Policy Announcements Shift Household Expectations?

Abstract: We use a decade of daily survey data from Gallup to study how monetary policy influences households' beliefs about economic conditions. We first document that public confidence in the state of the economy reacts instantaneously to certain types of macroeconomic news. Next, we show that surprises to the Federal Funds target rate are among the news that have statistically significant and instantaneous effects on economic confidence. Specifically, we find that a surprise increase in the target rate robustly leads to an immediate decline in household confidence, at odds with previous findings that suggest consumers are largely inattentive to economic developments. Monetary policy news about forward guidance and asset purchases does not have similarly clear and robust immediate effects on household beliefs. We document heterogeneity across demographics in the responsiveness of macroeconomic beliefs to aggregate news, and we relate our findings to existing evidence on informational rigidities.

Keywords: Monetary policy shocks; central bank communications; information rigidities; consumer confidence; high frequency identification;

JEL Classification: E30; E40; E50; E70;

https://doi.org/10.24149/wp1906r1

Bibliographic Information

Provider: Federal Reserve Bank of Dallas

Part of Series: Working Papers

Publication Date: 2020-01-17

Number: 1906

Related Works

• Working Paper Revision (2020-01-17) : You are here.
• Working Paper Original (2019-09-05) : Do Monetary Policy Announcements Shift Household Expectations?