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Economic Policy Uncertainty, Trust and Inflation Expectations

Klodiana Istrefi () and Anamaria Piloiu

No 4294, CESifo Working Paper Series from CESifo

Abstract: Theory and evidence suggest that in an environment of well-anchored expectations, temporary news or shocks to economic variables, 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 sensible to policy-related uncertainty shocks. A rise of long-term inflation expectations in times of economic contraction, in response to such shocks, suggests that heightened policy uncertainty observed during the recent years indeed raises concerns about future inflation. Furthermore, both monetary and fiscal policy-related uncertainties are significant for the negative dynamics in citizens’ trust in the ECB.

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)
Date: 2013
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