Inflationary Household Uncertainty Shocks

61 Pages Posted: 30 Apr 2020

Date Written: April 30, 2020

Abstract

I construct a novel measure of household uncertainty based on survey data for European countries. I show that household uncertainty shocks are not universally like negative demand shocks. Notably, household uncertainty shocks are largely inflationary in Europe. These results lend support to a pricing bias mechanism as an important transmission channel. A comparison of results across countries suggest that demographics and factors related to average markups along with monetary policy play a role in the transmission of household uncertainty to inflation. I develop an Overlapping Generations New Keynesian model with Deep Habits to rationalize these results.

Keywords: uncertainty, inflation, household expectations, deep habits, demographics

JEL Classification: D84, E20, E30, E71

Suggested Citation

Ambrocio, Gene, Inflationary Household Uncertainty Shocks (April 30, 2020). Bank of Finland Research Discussion Paper No. 5/2020, Available at SSRN: https://ssrn.com/abstract=3589564

Gene Ambrocio (Contact Author)

Bank of Finland ( email )

P.O. Box 160
Helsinki 00101
Finland

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