September 2016 issue contents
The effect of unconventional monetary policy on inflation expectations: evidence from firms in the United Kingdom

by Lena Boneva,a, b James Cloyne,a, c Martin Wealea and Tomasz Wieladekc, d


This paper investigates the effect of quantitative easing (QE) and other unconventional monetary policies on price and wage growth expectations of UK manufacturing firms. To identify the effect of QE on firms' expectations, we use a novel approach of combining microeconometric data with macroeconomic shocks: QE is exogenous to inflation expectations of individual firms, and so are other macroeconomic developments like aggregate inflation or GDP growth. We find that firms' price and wage inflation expectations increase by 0.22 percentage points in response to £50 billion of QE, implying that inflation expectations are part of the transmission mechanism of QE. In contrast, we find a positive but small and insignificant effect of forward guidance on price and wage inflation expectations.

JEL Codes: D22, E52, E31.

Full article (PDF, 35 pages, 600 kb) 
Discussion by Julio A. Carrillo

a Bank of England 
b London School of Economics
d Barclays