Inflation Expectations and Monetary Policy Surprises
SourceScandinavian Journal of Economics
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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.