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dc.titleThe Effects of Interest Rate Increases on Consumers’ Inflation Expectations: The Roles of Informedness and Compliance
dc.contributor.authorKnotek, Edward S
dc.contributor.authorMitchell, James
dc.contributor.authorPedemonte, Mathieu
dc.contributor.authorShiroff, Taylor
dc.contributor.orgunitDepartment of Research and Chief Economist
dc.coverageUnited States
dc.date.available2024-09-25T00:09:00
dc.date.issue2024-09-25T00:09:00
dc.description.abstractWe study how monetary policy communications associated with increasing the federal funds rate causally affect consumers inflation expectations in real time. In a large-scale, multi-wave randomized controlled trial (RCT), we find weak evidence that communicating these policy changes lowers consumers medium-term inflation expectations on average. However, information differs systematically across demographic groups, in terms of ex ante informedness about monetary policy and ex post compliance with the information treatment. Monetary policy communications have a much stronger effect on the subset of consumers who had not previously heard news about monetary policy and who take sufficient time to read the treatment. Our findings show that, in an inflationary environment, these consumers expect that raising interest rates will lower inflation. More generally, our results emphasize the importance of measuring both respondents information sets and their compliance with treatment when using RCTs in empirical macroeconomics to better understand the real-world implications of monetary policy communications.
dc.format.extent65
dc.identifier.doihttp://dx.doi.org/10.18235/0013184
dc.identifier.urlhttps://publications.iadb.org/publications/english/document/the-effects-of-interest-rate-increases-on-consumers-inflation-expectations-the-roles-of-informedness-and-compliance.pdf
dc.language.isoen
dc.publisherInter-American Development Bank
dc.subjectMonetary Policy
dc.subjectInflation Targeting
dc.subjectInflation
dc.subjectRating
dc.subjectInterest Rate
dc.subjectRandomized Controlled Trial
dc.subjectEconomy
dc.subjectMacroeconomy
dc.subject.jelcodeE31 - Price Level • Inflation • Deflation
dc.subject.jelcodeE52 - Monetary Policy
dc.subject.jelcodeE58 - Central Banks and Their Policies
dc.subject.keywordsExpectations formation;Policy communication;Monetary policy;Inflation;surveys
idb.identifier.pubnumberIDB-WP-01641
idb.operationRG-K1089
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