Working Paper: NBER ID: w23228
Authors: Ulrike Malmendier; Stefan Nagel; Zhen Yan
Abstract: We show that personal experiences of inflation strongly influence the hawkish or dovish leanings of central bankers. For all members of the Federal Open Market Committee (FOMC) since 1951, we estimate an adaptive learning rule based on their lifetime inflation data. The resulting experience-based forecasts have significant predictive power for members' FOMC voting decisions, the hawkishness of the tone of their speeches, as well as the heterogeneity in their semi-annual inflation projections. Averaging over all FOMC members present at a meeting, inflation experiences also help to explain the federal funds target rate, over and above conventional Taylor rule components.
Keywords: Inflation; Monetary Policy; FOMC; Central Bankers
JEL Codes: D84; E03; E50
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| FOMC members' lifetime inflation experiences (E31) | FOMC members' voting decisions (E58) |
| one standard deviation increase in experience-based inflation forecast (E31) | probability of hawkish dissent (D79) |
| one standard deviation increase in experience-based inflation forecast (E31) | probability of dovish dissent (D79) |
| FOMC members' lifetime inflation experiences (E31) | tone of FOMC members' speeches (E52) |
| experience-based forecasts (C53) | members' voting decisions (D72) |
| experience-based forecasts (C53) | inflation projections (E31) |