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Inflationary household uncertainty shocks

Gene Ambrocio

No 5/2020, Bank of Finland Research Discussion Papers from Bank of Finland

Abstract: I construct a novel measure of household uncertainty based on survey data for European countries. I show that household uncertainty shocks are not universally like negative demand shocks. Notably, household uncertainty shocks are largely inflationary in Europe. These results lend support to a pricing bias mechanism as an important transmission channel. A comparison of results across countries suggest that demographics and factors related to average markups along with monetary policy play a role in the transmission of household uncertainty to inflation. I develop an Overlapping Generations New Keynesian model with Deep Habits to rationalize these results.

Keywords: uncertainty; inflation; household expectations; deep habits; demographics (search for similar items in EconPapers)
JEL-codes: D84 E20 E30 E71 (search for similar items in EconPapers)
Date: 2020
Note: A revised version published on 14 Feb 2022 is available as BoF DP 5/2022.
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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