Event summary

We empirically investigate whether monetary policy announcements affect firms and consumers’ expectations, by taking into account the media treatment of the monetary policy decision. To identify exogenous changes in the monetary policy stance, we use the standard monetary policy surprise measure: the surprise in the overnight index swap during the central bank press conference. We then analyze how a general and a financial newspaper (Le Monde and The Financial Times) report on the decision. We find that, most of the time, monetary policy surprises are not associated with the general newspaper reporting a change in the monetary policy stance to their readers. We also find that several monetary policy surprises are not consistent with the media report of the announcement. When we use the raw monetary policy surprises variable as an independent variable in the link between monetary policy announcements and firms/consumers’ expectations, we mostly do not find, in line with some previous studies, any statistically significant association. When we take only monetary policy surprises for which the sign is consistent with the general newspaper report of the monetary policy announcement, in the vast majority of cases we find that monetary policy surprises do affect expectations. The results appear in line with rational inattention and limited cognitivity theories, and cast further doubts on the relevance of monetary policy surprise measures for macroeconomic investigations.