We study whether firms' expectations react to the Bank of England's monetary policy announcements by comparing the responses to the Decision Maker Panel (DMP) survey filed immediately before and after a Monetary Policy Committee (MPC) meeting. On the one hand, we find that firms' expectations and uncertainty about their own business for the most part do not respond to high-frequency monetary policy surprises. On the other hand, announced changes in the monetary policy rate induce firms to revise their price expectations, with rate hikes resulting in a reduction in price expectations and the uncertainty surrounding them.
Di Pace, F., Mangiante, G., Masolo, R. M., Do firm expectations respond to Monetary Policy announcements?, <<Dipartimento di Economia e Finanza, Working Papers del Dipartimento>>, 2023; (127): 1-31 [https://hdl.handle.net/10807/263634]
Do firm expectations respond to Monetary Policy announcements?
Masolo, Riccardo Maria
2023
Abstract
We study whether firms' expectations react to the Bank of England's monetary policy announcements by comparing the responses to the Decision Maker Panel (DMP) survey filed immediately before and after a Monetary Policy Committee (MPC) meeting. On the one hand, we find that firms' expectations and uncertainty about their own business for the most part do not respond to high-frequency monetary policy surprises. On the other hand, announced changes in the monetary policy rate induce firms to revise their price expectations, with rate hikes resulting in a reduction in price expectations and the uncertainty surrounding them.
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