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Journal Article
The Information Effect of Monetary Policy: Self-Defeating or Optimal?
As the Federal Reserve has become more transparent about its decisions on the federal funds target rate, the general public has begun to regard the rate as not only a benchmark interest rate, but also as a signal about the state of the economy. However, the specific information considered by the public to be revealed is not clearly understood. We investigate this question and find that the information revealed by monetary policy decisions is regarding future output growth, not inflation, and that such an information effect is theoretically optimal and does not make interest-rate policies ...
Working Paper
Late Payment Fees and Nonpayment in Rental Markets, and Implications for Inflation Measurement: Theoretical Considerations and Evidence
Accurate rent measurement is essential for constructing a consumer price index (CPI) and for measuring household welfare. Late payment fees and nonpayment of rent are common components of rental expenditures and thus belong in CPIs. Late payment fees are often excluded; we offer a novel critique. In the US CPI, nonpayment is ostensibly included, but, we show, severely undermeasured. Moreover, the manner of its inclusion renders the CPI extremely sensitive to nonpayment variations; we show how to fix this. Nonpayment undermeasurement suggests at least a +1 ppt overestimate in 2020 CPI shelter ...
Working Paper
Late Payment Fees and Nonpayment in Rental Markets, and Implications for Inflation Measurement: Theoretical Considerations and Evidence
tatistical agencies track rental expenditures for use in the national accounts and in consumer price indexes (CPIs). As such, statistical agencies should include late payment fees and nonpayment in rent. In the US context, late payment fees are excluded from the CPI. Ostensibly, nonpayment of rent is included in the US CPI; but its treatment is deficient, and we demonstrate that small variations in nonpayment could lead to large swings in shelter inflation, and might have played a role in the 2009 measured shelter inflation collapse. They didn’t: while the national nonpayment incidence is ...
Journal Article
The CPI–PCEPI Inflation Differential: Causes and Prospects
The Federal Open Market Committee’s inflation target is stated in terms of the personal consumption expenditures price index (PCEPI). The PCEPI, like the consumer price index (CPI), measures inflation in the expenditures of households, but these indexes differ in purpose, scope, and construction. Notably, since the CPI is used as the reference rate for numerous financial contracts, one can derive implied longer-run CPI inflation forecasts from financial contracts. Such forecasts are widely reported. But if policymakers are to use these forecasts to guide their pursuit of the inflation ...
Working Paper
Thinking Outside the Box: Do SPF Respondents Have Anchored Inflation Expectations?
Despite the stability of the median 10-year inflation expectations in the Survey of Professional Forecasters (SPF) near 2 percent, we show that not a single SPF respondent?s expectations have been anchored at the target since the Federal Open Market Committee?s (FOMC) enactment of an inflation target in January 2012, or even since 2015. However, we find significant evidence for ?delayed anchoring,? or a move toward being anchored, particularly after the federal funds rate lifted off in December 2015.
Journal Article
Forward Guidance during the Pandemic: Has It Changed the Public’s Expectations?
In responding to the COVID-19 crisis, the Federal Reserve has both lowered the federal funds rate and provided forward guidance. We study whether the forward guidance given with the April and June 2020 FOMC meetings altered the public’s expectations of future policy rates, GDP growth, and inflation. We find that forward guidance was effective in altering the public’s expectations about future policy rates if it was accompanied by an SEP but not expectations about economic fundamentals. We suggest that the difference might be explained by FOMC statements being interpretable in two ...