Expectations, Uncertainty, and Monetary Policy

Essay 1 – To evaluate measures of expectations I examine and compare some of the most common methods for capturing expectations: the futures method which utilizes financial market prices, the VAR forecast method, and the survey method. I study average expectations on the Federal funds rate target, and the main findings can be summarized as follows: i) the survey measure and the futures measure are highly correlated; the correlation coefficient is 0.81 which indicates that the measures capture the same phenomenon, ii) the survey measure consistently overestimates the realized changes in the interest rate, iii) the VAR forecast method shows little resemblance with the other methods.Essay 2 – This paper takes a critical look at available proxies of uncertainty. Two questions are addressed: (i) How do we evaluate these proxies given that subjective uncertainty is inherently unobservable? (ii) Is there such a thing as a general macroeconomic uncertainty? Using correlations, some narrative evidence and a factor analysis, we find that disagreement and stock market volatility proxies seem to be valid measures of uncertainty whereas probability forecast measures are not. This result is reinforced when we use our proxies in standard macroeconomic applications where uncertainty is supposed to be of importance. Uncertainty is positively correlated with the absolute value of the GDP-gap.Essay 3 – The co-movements of exchange rates and interest rates as the economy responds to shocks is a potential source of deviations from uncovered interest rate parity. This paper investigates whether an open economy macro model with endogenous monetary policy


Essay 1
Measuring Expectations
1 Introduction
2 Methods for Measuring Expectations
2.1 VAR Forecast Method
2.2 Futures Method
2.3 Survey Method
3 Data
4 Comparing the Measures of Expectations
4.1 Descriptive Statistics
4.2 Autocorrelations
4.3 Correlations between Measures
5 Conclusions
Essay 2 A Critical Look at Measures of Macroeconomic Uncertainty
1 Introduction
2 A Model Motivation
3 Uncertainty Proxies
3.1 Stock Market Volatility
3.2 Disagreement Proxies
3.3 Probability Forecast Proxies
4 Do Uncertainty Proxies Measure Uncertainty?
4.1 Narratives
4.2 Correlations
5 Factor Analysis
6 Extensions
6.1 Co-movements with the Business Cycle
6.2 Precautionary Savings
6.3 Residential Investment
7 Conclusions
Essay 3 Can Endogenous Monetary Policy Explain the Deviations from UIP?
1 Introduction
2 The Puzzle
3 The Model
4 Calibration
5 Deviations from UIP in Simulated Data
6 Impulse Response Functions
7 Decompositions of the Deviations from UIP
8 Second Moments in Simulated Data
9 Conclusions
Data Appendix
Essay 4 Analyzing Unexpected Monetary Policy
1 Introduction
2 Measuring Market Expectations
3 Data
4 Expectation Formation as a Function of Forecast Horizon
4.1 Market Expectations on Scheduled FOMC Meetings
4.2 Excluding Overlaps
4.3 FOMC Meetings with and without Action
5 Measuring Impact of Improved Transparency
6 Conclusions

Author: Kjellberg, David

Source: Uppsala University Library

Download URL 2: Visit Now