NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Expectations and the Effects of Monetary Policy

Laurence Ball, Dean Croushore

NBER Working Paper No. 5344
Issued in November 1995
NBER Program(s):   EFG   ME

This paper examines the predictive power of shifts in monetary policy, as measured by changes in the federal funds rate, for output, inflation, and survey expectations of these variables. We find that policy shifts have larger effects on actual output than on expected output, suggesting that agents underestimate the effects of policy on aggregate demand. Our results help to explain the real effects of monetary policy, and they provide a strong rejection of the rational expectations hypothesis.

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Document Object Identifier (DOI): 10.3386/w5344

Published: Ball, Laurence and Dean Croushore. "Expectations And The Effects Of Monetary Policy," Journal of Money, Credit and Banking, 2003, v35(4,Aug), 473-484. citation courtesy of

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