Disagreement about inflation expectations and monetary policy transmission

Abstract Time-variation in disagreement about future inflation is a stylized fact in survey data, but little is known on how disagreement interacts with the efficacy of monetary policy. We show that a contractionary 100 bps U.S. monetary policy shock leads to a statistically significant increase in inflation and inflation expectations of up to 0.7 percentage points in times of high disagreement, whereas in times of low disagreement it leads to a significant decline in these variables of around 0.8 percentage points. We reconcile these state-dependent effects with a regime-switching dispersed information New Keynesian model, where we calibrate the information structure to match disagreement about inflation expectations in U.S. data.