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Disagreement about inflation expectations and monetary policy transmission

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  • Falck, E.
  • Hoffmann, M.
  • Hürtgen, P.

Abstract

Time-variation in disagreement about future inflation is a stylized fact in survey data, but little is known on how disagreement interacts with the efficacy of monetary policy. We show that a contractionary 100 bps U.S. monetary policy shock leads to a statistically significant increase in inflation and inflation expectations of up to 0.7 percentage points in times of high disagreement, whereas in times of low disagreement it leads to a significant decline in these variables of around 0.8 percentage points. We reconcile these state-dependent effects with a regime-switching dispersed information New Keynesian model, where we calibrate the information structure to match disagreement about inflation expectations in U.S. data.

Suggested Citation

  • Falck, E. & Hoffmann, M. & Hürtgen, P., 2021. "Disagreement about inflation expectations and monetary policy transmission," Journal of Monetary Economics, Elsevier, vol. 118(C), pages 15-31.
    • Handle: RePEc:eee:moneco:v:118:y:2021:i:c:p:15-31
    DOI: 10.1016/j.jmoneco.2019.08.018
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    5. Esady, Vania, 2022. "Real and nominal effects of monetary shocks under time-varying disagreement," Bank of England working papers 1007, Bank of England.
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    12. Ding Dong & Zheng Liu & Pengfei Wang & Min Wei, 2024. "Inflation Disagreement Weakens the Power of Monetary Policy," Working Paper Series 2024-27, Federal Reserve Bank of San Francisco.
    13. Ina Hajdini & Edward S. Knotek & John Leer & Mathieu Pedemonte & Robert W. Rich & Raphael Schoenle, 2022. "Indirect Consumer Inflation Expectations," Economic Commentary, Federal Reserve Bank of Cleveland, vol. 2022(03), pages 1-9, March.
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    18. Czudaj, Robert L., 2023. "Anchoring of Inflation Expectations and the Role of Monetary Policy and Cost-Push Factors," MPRA Paper 119029, University Library of Munich, Germany.
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