Inflationary household uncertainty shocks

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Title: Inflationary household uncertainty shocks
ISBN: 978-952-323-324-9
Author: Ambrocio, Gene
Organization: Bank of Finland
Series: Bank of Finland Research Discussion Papers
ISSN: 1456-6184
Series year: 2020
Series number: 5/2020
Year of publication: 2020
Publication date: 24.4.2020
Pages: 61
Subject (yso): inflaatio; epävarmuus; odotukset; kotitaloudet (organisaatiot); hinnat
Keywords: Eurooppa
JEL: D84; E20; E30; E71
Other keywords: uncertainty; inflation; household expectations; demographics; deep habits
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.

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