Working Paper: CEPR ID: DP17758
Authors: Michael Bauer; Carolin Pflueger; Adi Sunderam
Abstract: We estimate perceptions about the Fed's monetary policy rule from panel data on professional forecasts of interest rates and macroeconomic conditions. The perceived dependence of the federal funds rate on economic conditions is time-varying and cyclical: high during tightening episodes but low during easings. Forecasters update their perceptions about the policy rule in response to monetary policy actions, measured by high-frequency interest rate surprises, suggesting that forecasters have imperfect information about the rule. The perceived rule impacts asset prices crucial for monetary policy transmission, driving how interest rates respond to macroeconomic news and explaining term premia in long-term interest rates.
Keywords: beliefs; monetary policy rule; survey forecasts
JEL Codes: E43; E52; E58
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| perceived monetary policy rule (E52) | asset prices (G19) |
| perceived output gap coefficient (E23) | economic conditions (E66) |
| economic conditions (E66) | perceived output gap coefficient (E23) |
| high-frequency monetary policy surprises (E39) | forecasters' perceptions (C53) |
| economic conditions (E66) | perceived responsiveness (M14) |
| perceived responsiveness (M14) | market interest rates (E43) |
| perceived responsiveness (M14) | term premium on long-term interest rates (E43) |
| slope of the yield curve (E43) | perceived responsiveness (M14) |