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Research output: Working paper
Research output: Working paper
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TY - UNPB
T1 - Belief Distortions and Disagreement about Inflation
AU - Fasani, Stefano
AU - Patella, Valeria
AU - Pagano Giorgianni, Giuseppe
AU - Rossi, Lorenza
PY - 2025/5/16
Y1 - 2025/5/16
N2 - This paper investigates the macroeconomic effects of a belief distortion shock—an unexpected increase in the wedge between household and professional forecaster inflation expectations. Using survey and macro data alongside machine-learning techniques, we identify this shock and examine its effects within and outside the ZLB, while conditioning on the degree of inflation disagreement. The shock increases unemployment during normal times, whereas it reduces it in the ZLB, when the monetary stance is accommodative. Inflation disagreement instead dampens the expansionary effects of the shock. A New Keynesian model with belief distortion shocks replicates these dynamics and reproduces the inflation disagreement empirical patterns.
AB - This paper investigates the macroeconomic effects of a belief distortion shock—an unexpected increase in the wedge between household and professional forecaster inflation expectations. Using survey and macro data alongside machine-learning techniques, we identify this shock and examine its effects within and outside the ZLB, while conditioning on the degree of inflation disagreement. The shock increases unemployment during normal times, whereas it reduces it in the ZLB, when the monetary stance is accommodative. Inflation disagreement instead dampens the expansionary effects of the shock. A New Keynesian model with belief distortion shocks replicates these dynamics and reproduces the inflation disagreement empirical patterns.
KW - Inflation
KW - Belief Distortion Shock
KW - Inflation Disagreement
KW - Households Expectation
KW - Machine Learning
KW - Local Projections
KW - New Keynesian model
KW - Monetary Policy
KW - ZLB
M3 - Working paper
T3 - Economics Working Papers Series
BT - Belief Distortions and Disagreement about Inflation
PB - The Department of Economics
CY - Lancaster
ER -