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The Making of Hawks and Doves: Inflation Experiences on the FOMC

Ulrike Malmendier, Stefan Nagel, Zhen Yan

NBER Working Paper No. 23228
Issued in March 2017
NBER Program(s):Asset Pricing, Economic Fluctuations and Growth, Monetary Economics

We show that personal experiences of inflation strongly influence the hawkish or dovish leanings of central bankers. For all members of the Federal Open Market Committee (FOMC) since 1951, we estimate an adaptive learning rule based on their lifetime inflation data. The resulting experience-based forecasts have significant predictive power for members' FOMC voting decisions, the hawkishness of the tone of their speeches, as well as the heterogeneity in their semi-annual inflation projections. Averaging over all FOMC members present at a meeting, inflation experiences also help to explain the federal funds target rate, over and above conventional Taylor rule components.

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Document Object Identifier (DOI): 10.3386/w23228

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