Forward Guidance and Household Expectations

76 Pages Posted: 24 Feb 2020 Last revised: 3 Mar 2023

See all articles by Olivier Coibion

Olivier Coibion

University of Texas at Austin

Dimitris Georgarakos

European Central Bank (ECB) - Directorate General Research; Center for Financial Studies (CFS)

Yuriy Gorodnichenko

University of California, Berkeley - Department of Economics; National Bureau of Economic Research (NBER); IZA Institute of Labor Economics

Michael Weber

University of Chicago - Finance; National Bureau of Economic Research (NBER)

Multiple version iconThere are 4 versions of this paper

Date Written: February 2020

Abstract

We compare the causal effects of forward guidance communication about future interest rates on households’ expectations of inflation, mortgage rates, and unemployment to the effects of communication about future inflation in a randomized controlled trial using more than 25,000 U.S. individuals in the Nielsen Homescan panel. We elicit individuals’ expectations and then provide 22 different forms of information regarding past, current and/or future inflation and interest rates. Information treatments about current and next year’s interest rates have a strong effect on household expectations but treatments beyond one year do not have any additional impact on forecasts. Exogenous variation in inflation expectations transmits into other expectations. The richness of our survey allows us to better understand how individuals form expectations about macroeconomic variables jointly and the non-response to long-run forward guidance is consistent with models in which agents have constrained capacity to collect and process information.

Suggested Citation

Coibion, Olivier and Georgarakos, Dimitris and Gorodnichenko, Yuriy and Weber, Michael, Forward Guidance and Household Expectations (February 2020). NBER Working Paper No. w26778, Available at SSRN: https://ssrn.com/abstract=3543301

Olivier Coibion (Contact Author)

University of Texas at Austin ( email )

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Austin, TX Texas 78712
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Dimitris Georgarakos

European Central Bank (ECB) - Directorate General Research ( email )

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Germany

Center for Financial Studies (CFS) ( email )

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Yuriy Gorodnichenko

University of California, Berkeley - Department of Economics ( email )

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Berkeley, CA 94720-3880
United States

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National Bureau of Economic Research (NBER) ( email )

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IZA Institute of Labor Economics ( email )

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Michael Weber

University of Chicago - Finance ( email )

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Chicago, IL 60637
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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