Forward guidance and household expectations

Coibion, O., Georgarakos, D., Gorodnichenko, Y. and Weber, M. (2023) Forward guidance and household expectations. Journal of the European Economic Association, (doi: 10.1093/jeea/jvad003) (Early Online Publication)

Abstract

We compare causal effects of forward guidance about future interest rates on households’ expectations of inflation and nominal mortgage rates to the effects of communication about inflation in a randomized control trial using more than 20,000 U.S. consumers in the Nielsen Homescan Panel. We elicit consumers’ expectations, and then provide 22 different forms of information regarding past, current, and/or future interest rates and inflation. Information treatments about current or future interest rates all have similar and offsetting effects on interest rate and inflation expectations, yielding limited pass-through into perceived real rates. Information about mortgage rates has much more powerful effects on interest rate perceptions, with no offsetting effects on inflation expectations, thereby delivering much larger changes in perceived real rates. Revisions in perceived real rates causally lead to changes in the ex-post purchases of durable goods by households.

• Item Type: Articles
• Status: Early Online Publication
• Refereed: Yes
• Glasgow Author(s) Enlighten ID: Georgarakos, Professor Dimitris
• Authors: Coibion, O., Georgarakos, D., Gorodnichenko, Y., and Weber, M.
• College/School: College of Social Sciences > Adam Smith Business School > Economics
• Journal Name: Journal of the European Economic Association
• Publisher: Oxford University Press
• ISSN: 1542-4766
• ISSN (Online): 1542-4774
• Published Online: 25 January 2023
• Copyright Holders: Copyright © 2023 The Authors
• First Published: First published in Journal of the European Economic Association 2023
• Publisher Policy: Reproduced in accordance with the publisher copyright policy