Perceived monetary policy uncertainty

Beckmann, Joscha and Czudaj, Robert L. (2022): Perceived monetary policy uncertainty.

Abstract

This paper examines whether media attention affects the macroeconomic effects of monetary policy uncertainty. We combine survey data from Consensus Economics and data on media attention from MarketPsych to distinguish between uncertainty and perceived uncertainty among the public. We assess the corresponding nonlinear effects on stock returns, the growth of industrial production, and inflation. Our results confirm that monetary policy uncertainty tends to have negative effects on production growth and stock returns. In particular for industrial production, such effects tend to be stronger in case of higher media coverage which acts as a propagation mechanism.

• Item Type: MPRA Paper
• Language: English
• Keywords: expectations; media; monetary policy; survey data; uncertainty
• Subjects: E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E43 - Interest Rates: Determination, Term Structure, and Effects; E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E47 - Forecasting and Simulation: Models and Applications; E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy

References

Andrade P, Le Bihan H. 2013. Inattentive professional forecasters. Journal of Monetary Economics 60: 967–982.

Bachmann R, Elstner S, Sims ER. 2013. Uncertainty and economic activity: Evidence from business survey data. American Economic Journal: Macroeconomics 5: 217– 249.

Baker SR, Bloom N, Davis SJ. 2016. Measuring economic policy uncertainty. Quarterly Journal of Economics 131: 1593–1636. Bauer M, Lakdawala A, Mueller P. 2022. Market-based monetary policy uncertainty. Economic Journal 132: 1290–1308.

Bauer MD. 2012. Monetary policy and interest rate uncertainty. FRBSF Economic Letter No. 2012-38.

Bems R, Caselli F, Grigoli F, Gruss B. 2021. Expectations’ anchoring and inflation persistence. Journal of International Economics 132: 103516.

Bennani H. 2018. Media coverage and ECB policy-making: Evidence from an augmented Taylor rule. Journal of Macroeconomics 57: 26–38.

Blinder A, Ehrmann M, Fratzscher M, de Haan J, Jansen DJ. 2008. Central bank communication and monetary policy: A survey of theory and evidence. Journal of Economic Literature 46: 910–945.

Bloom N. 2009. The impact of uncertainty shocks. Econometrica 77: 623–685.

Carroll CD. 2003. Macroeconomic expectations of households and professional forecasters. Quarterly Journal of Economics 118: 269–298.

Coenen G, Ehrmann M, Gaballo G, Hoffmann P, Nakov A, Nardelli S, Persson E, Strasser G. 2017. Communication of monetary policy in unconventional times. ECB Working Paper Series No. 2080.

Coibion O, Gorodnichenko Y. 2015. Information rigidity and the expectations formation process: A simple framework and new facts. American Economic Review 105: 2644–2678.

Coibion O, Gorodnichenko Y, Kumar S, Pedemonte M. 2020. Inflation expectations as a policy tool? Journal of International Economics 124: 103297.

Czudaj RL. 2022. Heterogeneity of beliefs and information rigidity in the crude oil market: Evidence from survey data. European Economic Review 143: 104041.

Fischer AM, Ranaldo A. 2011. Does FOMC news increase global FX trading? Journal of Banking & Finance 35: 2965–2973.

Hayo B, Neuenkirch M. 2015. Central bank communication in the financial crisis: Evidence from a survey of financial market participants. Journal of International Money and Finance 59: 166–181.

Husted L, Rogers J, Sun B. 2020. Monetary policy uncertainty. Journal of Monetary Economics 115: 20–36.

Istrefi K, Mouabbi S. 2018. Subjective interest rate uncertainty and the macroeconomy: A cross-country analysis. Journal of International Money and Finance 88: 296–313.

Jurado K, Ludvigson SC, Ng S. 2015. Measuring uncertainty. American Economic Review 105: 1177–1216.

Kim S, Shephard N, Chib S. 1998. Stochastic Volatility: Likelihood Inference and Comparison with ARCH Models. Review of Economic Studies 65: 361–393.

Lahiri K, Sheng X. 2010. Measuring forecast uncertainty by disagreement: The missing link. Journal of Applied Econometrics 25: 514–538.

Lahiri K, Zhao Y. 2019. International propagation of shocks: A dynamic factor model using survey forecasts. International Journal of Forecasting 35: 929–947.

Lamla MJ, Vinogradov DV. 2019. Central bank announcements: Big news for little people? Journal of Monetary Economics 108: 21–38.

Lucca D, Moench E. 2015. The pre-FOMC announcement drift. Journal of Finance 70: 329–371.

Masciandaro D, Romelli D, Rubera G. 2021. Monetary policy and financial markets: Evidence from Twitter traffic. BAFFI CAREFIN Working Papers No. 21160.

Melosi L. 2017. Signalling effects of monetary policy. Review of Economic Studies 84: 853–884.

Ozturk EO, Sheng XS. 2018. Measuring global and country-specific uncertainty. Journal of International Money and Finance 88: 276–295.

Picault M, Pinter J, Renault T. 2022. Media sentiment on monetary policy: Determinants and relevance for inflation expectations. Journal of International Money and Finance 124: 102626.

Picault M, Renault T. 2017. Words are not all created equal: A new measure of ECB communication. Journal of International Money and Finance 79: 136–156.

Scotti C. 2016. Surprise and uncertainty indexes: Real-time aggregation of real-activity macro-surprises. Journal of Monetary Economics 82: 1–19.

Swanson ET. 2006. Have increases in Federal Reserve transparency improved private sector interest rate forecasts? Journal of Money, Credit and Banking 38: 791–819.

Swanson ET. 2021. Measuring the effects of federal reserve forward guidance and asset purchases on financial markets. Journal of Monetary Economics 118: 32–53.

Tang J. 2015. Uncertainty and the signaling channel of monetary policy. Federal Reserve Bank of Boston - Research Department Working Papers No. 15-8.

Ter Ellen S, Larsen VH, Thorsrud LA. 2022. Narrative monetary policy surprises and the media. Journal of Money, Credit and Banking 54: 1525–1549.

Tillmann P. 2009. Optimal monetary policy with an uncertain cost channel. Journal of Money, Credit and Banking 41: 885–906.

Tillmann P. 2020. Monetary policy uncertainty and the response of the yield curve to policy shocks. Journal of Money, Credit and Banking 52: 803–833.