We run a survey among German households and examine whether explanation of monetary policy signals by economic experts shifts households’ inflation expectations.
Our survey elicits prior expectations on the 2023 inflation rate and on the future kind of monetary policy employed the ECB.
For causal interpretation, we rely on three treatment arms that aim to exogenously shift households’ expectations about monetary policy. The first treatment informs participants that the ECB has raised the interest rate (without any information on the level of rate of increase). Participants in the second treatment arm receive the information that we ran a survey among economic experts, and that the interest rate increase by the ECB decreased the short-term inflation expectations of those experts by 1.2 percentage points. The participants in the third treatment arm receive the information that we ran a survey among economic experts and that those experts told us that an increase in the interest rate by the ECB decreases the inflation rate, because the demand for goods decreases. We employ an active control group design. Participants in the control group receive (irrelevant) information about the population development in Germany.
We then asked participants about their posterior expectations on the inflation rate and on the future kind of monetary policy employed the ECB.
Our main hypothesis is that the treatments decrease the expected inflation rate. We also examine whether the treatments changed the uncertainty underlying the participants’ answers. The second hypothesis is that the treatments in the second and third treatment arm give rise to higher treatment effects compared to the treatment in the first treatment arm.