Title: Monetary policy surprises and inflation expectation dispersion
Authors: Francesco Grigoli - International Monetary Fund (United States) [presenting]
Abstract: The impact of monetary policy surprises on inflation expectation dispersion is analyzed. Relying on daily data of policy rate and inflation expectations at the analyst level for the United States and the United Kingdom, we calculate monetary policy surprises as unexpected changes in the policy rate two and a half days before the central bank meetings. This identification strategy isolates the effect of the information that is revealed by the central bank action (or inaction). The dispersion of inflation expectations is calculated, for different horizons, over the two and a half days following those meetings. We find that the information effect of the central bank decisions generates dispersion of inflation expectations at short horizons and has no effect or even a negative one at longer horizons. These results point to the need to improve communication of the monetary policy decisions so that dispersion is contained even at shorter horizons, when changes in policy rates do not have concrete effects.