E7 - Macro-Based Behavioral Economics

• How Do Households Respond to Expected Inflation? An Investigation of Transmission Mechanisms

  Staff Working Paper 2024-44 Janet Hua Jiang, Rupal Kamdar, Kelin Lu, Daniela Puzzello

  We conduct surveys to study how consumer spending responds to higher inflation expectations. Most respondents spend the same, sticking to fixed budget plans or not considering inflation for spending decisions. About 20% decrease spending because they feel poorer and cut spending to invest in inflation-proof assets. Very few increase spending.

  Content Type(s): Staff research, Staff working papers Topic(s): Central bank research, Inflation and prices, Inflation targets, Monetary policy, Monetary policy transmission JEL Code(s): D, D1, D15, D8, D84, E, E2, E5, E52, E7

• Endogenous Credibility and Wage-Price Spirals

  Staff Working Paper 2024-14 Olena Kostyshyna, Tolga Özden, Yang Zhang

  We quantitively assess the risks of a wage-price spiral occurring in Canada over history. We find the risk of a wage-price spiral increases when the inflation expectations become unanchored and the credibility of central banks declines.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Credibility, Inflation and prices, Monetary policy JEL Code(s): C, C2, C22, E, E0, E00, E4, E47, E7

• How Do Agents Form Macroeconomic Expectations? Evidence from Inflation Uncertainty

  Staff Working Paper 2024-5 Tao Wang

  The uncertainty regarding inflation that is observed in density forecasts of households and professionals helps macroeconomists understand the formation mechanism of inflation expectations. Shocks to inflation take time to be perceived by all agents in the economy, and such rigidity is lower in a high-inflation environment.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Inflation and prices, Monetary policy and uncertainty JEL Code(s): D, D8, D84, E, E3, E31, E7, E71

• Communicating Inflation Uncertainty and Household Expectations

  Staff Working Paper 2023-63 Olena Kostyshyna, Luba Petersen

  We examine the value of direct communication to households about inflation and the uncertainty around inflation statistics. All types of information about inflation are effective at immediately managing inflation expectations, with information about outlooks being more effective and relevant than that about recent inflation and Bank targets.

  Content Type(s): Staff research, Staff working papers Topic(s): Central bank research, Credibility, Inflation and prices, Inflation targets, Monetary policy and uncertainty, Monetary policy communications JEL Code(s): C, C9, C93, D, D8, D84, E, E5, E59, E7

• Perceived versus Calibrated Income Risks in Heterogeneous-Agent Consumption Models

  Staff Working Paper 2023-59 Tao Wang

  Perceived income risks reported in a survey of consumer expectations are more heterogeneous and, on average, lower than indirectly calibrated risks based on panel data. They prove to be one explanation for why a large fraction of households hold very little liquid savings and why accumulated wealth is widely unequal across households.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Monetary policy, Monetary policy and uncertainty JEL Code(s): D, D1, D14, E, E2, E21, E7, E71, G, G5, G51

• A Behavioral New Keynesian Model of a Small Open Economy Under Limited Foresight

  Staff Working Paper 2023-44 Seunghoon Na, Yinxi Xie

  This paper studies exchange rate dynamics by incorporating bounded rationality, that is, limited foresight, in a small open-economy model. This behavior of limited foresight helps explain several observations and puzzles in the data of exchange rate movements.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Exchange rates, International topics, Monetary policy transmission JEL Code(s): E, E4, E43, E7, E70, F, F3, F31, F4, F41

• What People Believe About Monetary Finance and What We Can(’t) Do About It: Evidence from a Large-Scale, Multi-Country Survey Experiment

  Staff Working Paper 2023-36 Cars Hommes, Julien Pinter, Isabelle Salle

  We conduct a large-scale survey to shed light on what people believe about public finance. An experiment demonstrates that central bank communication can persistently shift views on monetary financing. It further suggests that views on monetary financing impact support for fiscal discipline.

  Content Type(s): Staff research, Staff working papers Topic(s): Central bank research, Fiscal policy, Monetary policy JEL Code(s): C, C8, C83, E, E5, E58, E6, E60, E62, E7, E70, G, G5, G53, H, H3, H31

• Learning in a Complex World: Insights from an OLG Lab Experiment

  Staff Working Paper 2023-13 Cars Hommes, Stefanie J. Huber, Daria Minina, Isabelle Salle

  This paper brings novel insights into group coordination and price dynamics in complex environments. We implement a chaotic overlapping-generation model in the lab and find that group coordination is always on the steady state or on the two-cycle and that behavior is non-monotonic.

  Content Type(s): Staff research, Staff working papers Topic(s): Business fluctuations and cycles, Economic models JEL Code(s): C, C6, C62, C68, C9, C91, C92, E, E1, E13, E7, E70, G, G1, G12, G4, G41

• Nowcasting Canadian GDP with Density Combinations

  Staff Discussion Paper 2022-12 Tony Chernis, Taylor Webley

  We present a tool for creating density nowcasts for Canadian real GDP growth. We demonstrate that the combined densities are a reliable and accurate tool for assessing the state of the economy and risks to the outlook.

  Content Type(s): Staff research, Staff discussion papers Topic(s): Econometric and statistical methods JEL Code(s): C, C5, C52, C53, E, E3, E7

• More Than Words: Fed Chairs’ Communication During Congressional Testimonies

  Staff Working Paper 2022-20 Michelle Alexopoulos, Xinfen Han, Oleksiy Kryvtsov, Xu Zhang

  We measure soft information contained in the congressional testimonies of U.S. Federal Reserve Chairs and analyze its effect on financial markets. Increases in the Chair’s text-, voice-, or face-emotion indices during these testimonies generally raise stock prices and lower their volatility.

  Content Type(s): Staff research, Staff working papers Topic(s): Central bank research, Financial markets, Monetary policy communications JEL Code(s): E, E5, E52, E58, E7, E71