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Effects of monetary policy decisions on professional forecasters' expectations and expectations uncertainty

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  • Oinonen, Sami
  • Paloviita, Maritta
  • Viren, Matti

Abstract

In this paper, we examine how professional forecasters' expectations and expectation uncertainty have reacted to the ECB's interest rate decisions and non-conventional monetary policy measures during the period 1999-2017. The analysis makes use of a conventional dif-in-dif type set up with different time series tools. The results indicate that expectations have been sensitive to policy actions, but all forecasters' reactions do not seem to follow the basic predictions of a standard New Keynesian model. Also the relationship between inflation and output forecasts does not seem to follow a Phillips curve type relationship. Moreover, short- and long term reactions to policy are often weakly related and of different sign. Interestingly, subjective forecast uncertainty measures are very sensitive to policy measures. Thus, there seems to be much heterogeneity in forecasters' reactions to most policy decisions. All uncertainty measures, including long-term inflation uncertainty, have increased over time. This has to be taken into account when considering the anchoring of inflation expectations to the inflation target.

Suggested Citation

  • Oinonen, Sami & Paloviita, Maritta & Viren, Matti, 2018. "Effects of monetary policy decisions on professional forecasters' expectations and expectations uncertainty," Bank of Finland Research Discussion Papers 24/2018, Bank of Finland.
    • Handle: RePEc:zbw:bofrdp:rdp2018_024
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    References listed on IDEAS

    as
    1. Sami Oinonen & Maritta Paloviita, 2017. "How Informative are Aggregated Inflation Expectations? Evidence from the ECB Survey of Professional Forecasters," Journal of Business Cycle Research, Springer;Centre for International Research on Economic Tendency Surveys (CIRET), vol. 13(2), pages 139-163, November.
    2. Lena Boneva & James Cloyne & Martin Weale & Tomasz Wieladek, 2016. "The Effect of Unconventional Monetary Policy on Inflation Expectations: Evidence from Firms in the United Kingdom," International Journal of Central Banking, International Journal of Central Banking, vol. 12(3), pages 161-195, September.
    3. Lutz, Chandler, 2015. "The impact of conventional and unconventional monetary policy on investor sentiment," Journal of Banking & Finance, Elsevier, vol. 61(C), pages 89-105.
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    7. Joshua Abel & Robert Rich & Joseph Song & Joseph Tracy, 2016. "The Measurement and Behavior of Uncertainty: Evidence from the ECB Survey of Professional Forecasters," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 31(3), pages 533-550, April.
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    11. Galariotis, Emilios & Makrichoriti, Panagiota & Spyrou, Spyros, 2018. "The impact of conventional and unconventional monetary policy on expectations and sentiment," Journal of Banking & Finance, Elsevier, vol. 86(C), pages 1-20.
    12. Marek Jarocinski & Peter Karadi, 2017. "Central Bank Information Shocks," 2017 Meeting Papers 1193, Society for Economic Dynamics.
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    More about this item

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • G02 - Financial Economics - - General - - - Behavioral Finance: Underlying Principles

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