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Are survey expectations theory-consistent? The role of central bank communication and news

Dräger, Lena and Lamla, Michael J and Pfajfar, Damjan (2016) 'Are survey expectations theory-consistent? The role of central bank communication and news.' European Economic Review, 85. 84 - 111. ISSN 0014-2921

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Abstract

In this paper we analyze whether central bank communication can facilitate the understanding of key economic concepts. Using survey data for consumers and professionals, we calculate how many of them have expectations consistent with the Fisher Equation, the Taylor rule and the Phillips curve and test, by accounting for three different communication channels, whether central banks can influence those. A substantial share of participants has expectations consistent with the Fisher equation, followed by the Taylor rule and the Phillips curve. We show that having theory-consistent expectations is beneficial, as it improves the forecast accuracy. Furthermore, consistency is time varying. Exploring this time variation, we provide evidence that central bank communication as well as news on monetary policy can facilitate the understanding of those concepts and thereby improve the efficacy of monetary policy.

Item Type: Article
Uncontrolled Keywords: Macroeconomic expectations, Central bank communication, Monetary news, Survey microdata, Consumer forecast accuracy
Subjects: H Social Sciences > HG Finance
Divisions: Faculty of Social Sciences > Essex Business School
Faculty of Social Sciences > Essex Business School > Essex Finance Centre
Depositing User: Jim Jamieson
Date Deposited: 26 Feb 2016 14:38
Last Modified: 09 Nov 2018 11:15
URI: http://repository.essex.ac.uk/id/eprint/16147

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