Home > Research > Publications & Outputs > Endogenous uncertainty and the macroeconomic im...


Text available via DOI:

View graph of relations

Endogenous uncertainty and the macroeconomic impact of shocks to inflation expectations

Research output: Contribution to Journal/MagazineJournal articlepeer-review

<mark>Journal publication date</mark>30/11/2023
<mark>Journal</mark>Journal of Monetary Economics
Issue numberSupplement
Pages (from-to)S48-S63
Publication StatusPublished
Early online date13/04/23
<mark>Original language</mark>English


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.