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Inflation Expectations and Monetary Policy Surprises *
Author(s) -
Eminidou Snezana,
Zachariadis Marios,
Andreou Elena
Publication year - 2020
Publication title -
the scandinavian journal of economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.725
H-Index - 64
eISSN - 1467-9442
pISSN - 0347-0520
DOI - 10.1111/sjoe.12350
Subject(s) - economics , monetary policy , inflation (cosmology) , monetary economics , interest rate , imperfect , perfect information , financial crisis , inflation targeting , real interest rate , keynesian economics , microeconomics , linguistics , philosophy , physics , theoretical physics
We estimate monetary policy surprises for European consumers over time, based on monetary policy changes that were unanticipated according to consumers’ stated beliefs. We find that such monetary policy surprises have the opposite impact on inflation expectations from the impact found when assuming that consumers are well informed. Relaxing the latter assumption by focusing on consumers’ stated beliefs, unanticipated increases in the interest rate raise inflation expectations before the 2008 financial crisis. This is consistent with imperfect information theoretical settings where interest rate hikes are interpreted as positive news about the state of the economy by consumers who know that policymakers have relatively more information.