The effect of unconventional monetary policy on inflation expectations: evidence from firms in the United Kingdom

Boneva, Lena, Cloyne, James, Weale, Martin and Wieladek, Tomasz (2016) The effect of unconventional monetary policy on inflation expectations: evidence from firms in the United Kingdom. International Journal of Central Banking, 12 (3). pp. 161-195. ISSN 1815-4654

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Abstract

This paper investigates the effect of quantitative easing (QE) and other unconventional monetary policies on price and wage growth expectations of UK manufacturing firms. To identify the effect of QE on firms’ expectations, we use a novel approach of combining microeconometric data with macroeconomic shocks: QE is exogenous to inflation expectations of individual firms, and so are other macroeconomic developments like aggregate inflation or GDP growth. We find that firms’ price and wage inflation expectations increase by 0.22 percentage points in response to £50 billion of QE, implying that inflation expectations are part of the transmission mechanism of QE. In contrast, we find a positive but small and insignificant effect of forward guidance on price and wage inflation expectations.

Item Type:	Article
Official URL:	http://www.ijcb.org/index.html
Additional Information:	© 2016 Association of the International Journal of Central Banking
Library of Congress subject classification:	H Social Sciences > HG Finance J Political Science > JN Political institutions (Europe) > JN101 Great Britain
Journal of Economic Literature Classification System:	E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level; Inflation; Deflation E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy (Targets, Instruments, and Effects)
Sets:	Departments > Economics Collections > Economists Online
Date Deposited:	24 Oct 2016 15:10
URL:	http://eprints.lse.ac.uk/68114/

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