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Inflation Expectation Uncertainty in a New Keynesian Framework

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  • ANGELA FUEST
  • TORSTEN SCHMIDT

Abstract

This study analyzes inflation expectation uncertainty and the effect on economic activity. Within a New Keynesian framework, we estimate the effect of an inflation expectation uncertainty shock on the macroeconomy. Inflation expectation uncertainty negatively affects the inflation rate and the output gap, without having a distinct effect on the level of inflation expectations. Second, we provide a theoretical foundation for the effect of inflation expectation uncertainty in a New Keynesian‐type model, in which uncertainty affects economic activity via the supply side and the demand side of the economy. The results suggest that the demand channel outweighs the supply channel.

Suggested Citation

  • Angela Fuest & Torsten Schmidt, 2026. "Inflation Expectation Uncertainty in a New Keynesian Framework," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 58(3), pages 739-762, April.
    • Handle: RePEc:wly:jmoncb:v:58:y:2026:i:3:p:739-762
    DOI: 10.1111/jmcb.13218
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