The effects of inflation uncertainty on firms and the macroeconomy

Carola Binder, Ezgi Ozturk and Xuguang Simon Sheng

Journal of International Money and Finance, 2025, vol. 151, issue C

Abstract: We construct measures of inflation uncertainty for 33 countries using data from professional forecasters. Inflation uncertainty, as proxied by inflation forecast disagreement, rose substantially in most, but not all, countries following the pandemic. Using panel local projections, we show that inflation uncertainty reduces real economic activity. This holds true at the country level, where higher inflation uncertainty leads to lower industrial production, and at the firm level, where it results in lower real sales and employment. Global openness amplifies this negative impact, with the amplification effect being more pronounced for financial openness than for trade openness. Higher inflation uncertainty also leads to higher inflation.

Keywords: Firms; Forecast disagreement; Inflation uncertainty; Local projections (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jimfin:v:151:y:2025:i:c:s0261560624002262

DOI: 10.1016/j.jimonfin.2024.103239

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