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4 years ago

Inflation experiences shape central bankers' decisions and tone, impacting economy.

The Making of Hawks and Doves
Ulrike Malmendier, Stefan Nagel, Yan Zhen

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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 resulting experience-based forecasts predict FOMC voting decisions, the tone of speeches, and inflation projections. Inflation experiences also help explain the federal funds target rate, beyond conventional Taylor rule components.