Topic: Perceptions about Monetary Policy
Speaker: Carolin Pflueger, Assistant Professor, University of Chicago, Harris School of Public Policy
Date: March 9, 2022 (Wednesday)
Time: 10:00-11:30
Location: 4-101
Language: English
Abstract:
We estimate monthly perceptions about the Fed's monetary policy rule from cross-sectional survey data. We validate our measure by showing that it explains variation in the high-frequency interest rate responses to macroeconomic announcements. We document variation in the perceived monetary policy rule that is relevant for the conduct of monetary policy. First, the perceived reaction coefficient to the output gap varies over the business cycle, consistent with a cycle of quick rate cuts but gradual tightenings. Second, we show the perceived output gap coefficient responds to high-frequency monetary policy shocks in the direction predicted by rational learning. However, comparing forecasted and realized policy rates shows that the perceived coefficient underreacts. Third, a higher perceived output gap coefficient predicts negative excess returns on long-term Treasury bonds, providing a new explanation for why central banks may have limited ability to move long-term interest rates during tightening cycles.
About the speaker:
Carolin Pflueger is an Assistant Professor at the Harris School of Public Policy. She is also a National Bureau of Economic Research (NBER) Faculty Research Fellow and Centre for Economic and Policy Research (CEPR) Research Affiliate. Her research is at the intersection of macroeconomics and finance, with a particular focus on understanding the macroeconomic drivers of financial markets.
On the theory side, she has proposed a new integrated model of macroeconomic dynamics for stocks and bonds. On the empirical side she has worked on developing a new measure of risk appetite for the macroeconomy. She is also interested in understanding how inflation perceptions and the credibility of monetary policy affects borrowing choices in emerging markets.
Her research has been published in leading journals such as the Journal of Political Economy, the Quarterly Journal of Economics, the Journal of Finance, the Journal of Financial Economics, and the Journal of Monetary Economics. She won the Arthur Warga Award for the Best Paper in Fixed Income at the SFS Cavalcade 2014 and was a finalist for the AQR Insight Award 2018. Her work is policy relevant and has been presented at the Federal Reserve Board, the US Treasury Department, and the Bank of Canada, and has been influential for asset allocation at the Norwegian sovereign wealth fund.
She received her PhD in Business Economics from Harvard in 2012 and was an Assistant Professor of Finance at the University of British Columbia from 2012 until 2019. She previously held visiting positions at the Becker-Friedman Institute at the University of Chicago, Stanford University, MIT Sloan, Brown University, and the San Francisco Federal Reserve.
