Economics, Econometrics and Finance
5 years ago

Inflation experiences shape central bankers' hawkish or dovish decisions.

Journal of Monetary Economics
The making of hawks and doves
Ulrike Malmendier, Stefan Nagel, Zhen Yan

Paper Summary

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Personal experiences with inflation strongly influence central bankers' hawkish or dovish leanings. By analyzing lifetime inflation data of Federal Open Market Committee (FOMC) members since 1951, an adaptive learning rule was estimated. The forecasts based on these experiences predict FOMC voting decisions, the tone of speeches, and inflation projections. Additionally, inflation experiences help explain the federal funds target rate beyond traditional factors.