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Inflation Expectation Uncertainty, Inflation and the Outputgap

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  • Schmidt, Torsten

Abstract

This article examines the effect of inflation expectation uncertainty on inflation, inflation expectations and the output gap. For monetary policy, guiding inflation expectations provides an instrument to affect economic conditions. However, expectation uncertainty may undermine monetary policy's ability to stabilise the economy. Using a VAR model with stochastic volatility in mean, this paper shows that inflation expectation uncertainty has negative effects on the inflation rate and the output gap. This result is replicable with a model, in which uncertainty is approximated by a cross-sectional survey measure.

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  • Schmidt, Torsten, 2018. "Inflation Expectation Uncertainty, Inflation and the Outputgap," VfS Annual Conference 2018 (Freiburg, Breisgau): Digital Economy 181575, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc18:181575
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    Cited by:

    1. Choi, Yoonseok, 2021. "Inflation dynamics, the role of inflation at different horizons and inflation uncertainty," International Review of Economics & Finance, Elsevier, vol. 71(C), pages 649-662.

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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models

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