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Economic Policy Uncertainty and Inflation Expectations

Klodiana Istrefi () and Anamaria Piloiu

Working papers from Banque de France

Abstract: Theory and evidence suggest that in an environment of well-anchored expectations, temporary economic news or shocks should not affect agents' expectations of inflation in the long term. Our estimated structural VARs show that both long- and short-term inflation expectations are sensitive to policy-related uncertainty shocks. While economic activity contracts, long-term inflation expectations raise in response to such shocks. These results suggest that observed uncertainty about the stance and perceived effectiveness of policy raises concerns about future inflation and entails additional risks to central banks' hard-won inflation credibility.

Keywords: Policy uncertainty; central banks; inflation expectations; structural VAR. (search for similar items in EconPapers)
JEL-codes: E02 E31 E58 E63 P16 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2014
New Economics Papers: this item is included in nep-cba, nep-mac and nep-mon
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Journal Article: Economic policy uncertainty and inflation expectations (2016) Downloads
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