Endogenous uncertainty and the macroeconomic impact of shocks to inflation expectations

Guido Ascari, Stefano Fasani, Jakob Grazzini and Lorenza Rossi

Journal of Monetary Economics, 2023, vol. 140, issue S, S48-S63

Abstract: A shock that increases short-term inflation expectations has negative macroeconomic effects, increasing inflation and decreasing output. The third-order solution of a rich DSGE model with firm dynamics shows that the endogenous increase in uncertainty is key for both amplifying the transmission mechanism and providing robust sign restrictions to identify the inflation expectations shock in an empirical VAR. The model, estimated using limited information impulse response matching techniques, shows the importance of endogenous uncertainty and firm dynamics for the transmission mechanism of an inflation expectations shock. Furthermore, shocks that increase inflation expectations have stronger effects than shocks that reduce inflation expectations.

Keywords: Endogenous uncertainty; VAR; Inflation expectations; Firm dynamics (search for similar items in EconPapers)
JEL-codes: C5 E3 E5 E52 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:moneco:v:140:y:2023:i:s:p:s48-s63

DOI: 10.1016/j.jmoneco.2023.04.002

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