Monetary policy, unemployment expectations, and consumer loans: A structural VAR analysis

I utilize a Structural VAR framework to examine the interaction between monetary policy, unemployment expectations, and consumer loans. I differentiate between consumers' unemployment expectations and professionals' unemployment rate forecasts in order to determine if they respond differently to changes in monetary policy. Using the federal funds rate as the policy instrument, I find that consumer unemployment expectations are especially sensitive to federal funds rate changes and that consumer lending is sensitive to changes in unemployment expectations. I discuss how central bank credibility and consumers' information processing capacities may contribute to the observed sensitivity of consumers' unemployment expectations to changes in the federal funds rate and implications that may have for policymakers.