TITLE Subjective Monetary Policy Shocks
AUTHORS Kento Tango

Graduate School of International Management, Yokohama City University

Yoshiyuki Nakazono

Professor, Graduate School of International Management, Yokohama City University
Visiting Professor, Graduate School of Economics and Management, Tohoku University


We propose a new concept of monetary policy shocks: subjective monetary policy shocks. Using a unique survey on both consumption expenditures and forecasts of interest rates, we identify a cross-sectionally heterogeneous monetary policy shock at the micro level. We first distinguish between exogenous and endogenous interest rate changes and define the exogenous component as a subjective monetary policy shock for each household. We then estimate the impulse responses of consumption expenditures to a subjective monetary policy shock. We find the stark contrasts in the dynamics of consumption expenditures between borrowers and lenders; in response to an unexpected rise in interest rates, consumption expenditures by borrowers decrease, whereas those of asset holders increase. We also find large and quick responses of consumption expenditures when households are attentive to interest rates. Our findings support the theoretical prediction of not only heterogeneous agent New Keynesian models, but also behavioral macroeconomics under imperfect information.

KEYWORDS forecast revision; perceived monetary policy; rational inattention; subjective belief; subjective monetary policy shocks;
ISSUED April 2023  ☞ TUPD-2023-003
REVISED March 2024

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