Vicente Jimenez-Gimpel

Expectations and the Transmission of Monetary Policy (Job Market Paper) [draft coming soon!]

with Tomás Caravello

Abstract: Monetary policy works largely through expectations: long-term yields, mortgage rates, and investment depend on expected future policy, which markets infer from the central bank's decisions. We show that a central bank can set policy optimally at each meeting and yet leave the economy excessively vulnerable to errors in its real-time assessments of economic conditions. When choosing a rate, the central bank takes as given how markets interpret its decisions. Committing to a rule ex ante instead lets it shape that interpretation and limit the propagation of these errors. We embed our mechanism in a New Keynesian model and estimate it using macroeconomic data, Federal Reserve real-time forecasts, and inflation-swap responses to policy surprises. At our estimates, the optimal rule makes expectations less responsive to policy surprises and substantially reduces output-gap volatility. In an extension of the theoretical model, we show that uncertainty about market interpretation can dramatically magnify the inefficiency: meeting-by-meeting caution can reinforce the transmission uncertainty that motivates it.

Forward Guidance for Skeptical Markets

Abstract: This paper develops a theory of forward guidance that captures two key features of central bank communication: announcements are not fully state-contingent, and the private sector is wary of policy mistakes. The central bank tailors announcements along two central dimensions: (i) vagueness—how tightly the announcement constrains future policy; and (ii) data dependence—how aggressively future policy responds to a public signal of the economy. Three main lessons emerge. First, uncertainty affects communication differently depending on its source: sufficiently high uncertainty about either demand or cost-push shocks calls for vaguer guidance, but only demand-side uncertainty increases the optimal degree of data dependence. Second, strict rules are costly: fully precise guidance entails sizable stabilization losses, especially when the Phillips curve is steep. Third, because of the stabilizing role of announcements, optimal forward guidance differs sharply from simply communicating the best forecast of the future optimal policy rate (Delphic guidance).

MIT Department of Economics

• Advanced Macroeconomics I (14.461), PhD — Teaching Assistant, Fall 2023 and Fall 2025
• Principles of Macroeconomics (14.02), UG — Teaching Assistant, five semesters, 2024–2026

MIT Sloan School of Management

• Foundations of Modern Finance (15.415), Master of Finance — Teaching Assistant, Summer 2023
• Financial Mathematics (15.454), Master of Finance — Teaching Assistant, Summer 2022

Universidad Adolfo Ibáñez

• Intermediate Microeconomics — Instructor, two semesters, 2020–2021