Macrohistory Seminar – Ulrike Malmendier (UC Berkeley)

Event details

  • | Thursday, April 14
  • 12:15 PM
  • briq, Schaumburg-Lippe-Str. 9, room 9/1.1

The Making of Hawks and Doves: Inflation Experiences and Voting on the FOMC

with Stefan Nagel (University of Michigan) and Zhen Han (University of Michigan)


Macroeconomic models of monetary policy assume that policy makers form rational beliefs based on all available data. We show that personal lifetime experiences signi ficantly aff ect the forecasts and behavior of FOMC members. We link experience-based inflation expectations to the desired level of nominal interest rates using a forward-looking formulation of the Taylor rule. We test the predicted relationship on data of the FOMC voting history from March 1951 to January 2014. We find that a one standard-deviation increase in experience-based forecasts increases the unconditional probability of a hawkish dissent by about one third, and decreases the unconditional probability of a dovish dissent by about one third. Our results are robust to accounting for the di erent voting patterns of regional presidents and governors by allowing the thresholds for dissent to vary between groups as well as by other characteristics. We also fi nd a strong direct impact of experiences on forecasts. The di fference between FOMC and staff members’ inflation forecasts is signi cantly related to their difference in lifetime experiences of inflation. Our findings imply that even experts are aff ected by experience-based expectation formation.

Personal Website