Survey-based Monetary Policy Uncertainty and its Asymmetric Effects

We present empirical evidence revealing a notable asymmetry in the evolution of expectations regarding the federal funds rate. Specifically, our findings indicate that these expectations are more firmly anchored during periods of monetary tightening than episodes of monetary easing. Furthermore, we observe a gradual improvement in this anchoring phenomenon over time. We show that macroeconomic fundamentals cannot entirely explain this behavior. We then map the observed asymmetry of the forecast errors to interest rate and monetary policy uncertainty measures. We explore the macroeconomic consequences of monetary policy uncertainty. Our analysis reveals that these effects are not linear and depend on whether the economy is undergoing monetary easing or tightening. In monetary easing regimes, heightened uncertainty surrounding monetary policy tends to have a recessionary impact. Conversely, monetary policy uncertainty does not exert significant economic effects in periods of monetary tightening.