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Board of Governors of the Federal Reserve System (US)
Finance and Economics Discussion Series
Are Survey Expectations Theory-Consistent? The Role of Central Bank Communication and News
Lena Drager
Michael Lamla
Damjan Pfajfar
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.


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Download http://dx.doi.org/10.17016/FEDS.2015.035
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Lena Drager & Michael Lamla & Damjan Pfajfar, Are Survey Expectations Theory-Consistent? The Role of Central Bank Communication and News, Board of Governors of the Federal Reserve System (US), Finance and Economics Discussion Series 2015-35, 04 May 2015.
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Keywords: Macroeconomic expectations; central bank communication; consumer forecast accuracy; macroeconomic literacy; monetary news; survey microdata
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