Cieslak, A. and Povala, Pavol (2014) Expecting the fed. Working Paper. Social Science Electronic Publishing, Rochester, New York, USA.
Abstract
We study private sector expectations about the short-term interest rate. We uncover persistent differences between the ex-ante real rate perceived by agents in real-time and its full-sample counterpart estimated by the econometrician. Entering recessions, agents systematically overestimate the real rate, and underestimate future unemployment and the degree of monetary easing. These forecast errors induce persistence in identified monetary policy shocks and cause the econometrician to overstate the variation in Treasury risk premia. Our evidence offers a new interpretation of the unspanned factors phenomenon in the yield curve, emphasizing the key role of information rigidities for the dynamics of real interest rates.
Metadata
| Item Type: | Monograph (Working Paper) |
|---|---|
| Keyword(s) / Subject(s): | monetary policy, expectations, imperfect information, predictability |
| School: | Birkbeck Faculties and Schools > Faculty of Business and Law > Birkbeck Business School |
| Research Centres and Institutes: | Applied Macroeconomics, Birkbeck Centre for |
| Depositing User: | Sarah Hall |
| Date Deposited: | 15 Apr 2014 10:43 |
| Last Modified: | 02 Aug 2023 17:10 |
| URI: | https://eprints.bbk.ac.uk/id/eprint/9598 |
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