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Economic Policy Uncertainty, Trust and Inflation Expectations

Author

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  • Klodiana Istrefi
  • Anamaria Piloiu

Abstract

Theory and evidence suggest that in an environment of well-anchored expectations, temporary news or shocks to economic variables, should not affect agents’ expectations of inflation in the long term. Our estimated structural VARs show that both long- and short-term inflation expectations are sensible to policy-related uncertainty shocks. A rise of long-term inflation expectations in times of economic contraction, in response to such shocks, suggests that heightened policy uncertainty observed during the recent years indeed raises concerns about future inflation. Furthermore, both monetary and fiscal policy-related uncertainties are significant for the negative dynamics in citizens’ trust in the ECB.

Suggested Citation

  • Klodiana Istrefi & Anamaria Piloiu, 2013. "Economic Policy Uncertainty, Trust and Inflation Expectations," CESifo Working Paper Series 4294, CESifo Group Munich.
  • Handle: RePEc:ces:ceswps:_4294
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    File URL: http://www.cesifo-group.de/DocDL/cesifo1_wp4294.pdf
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    References listed on IDEAS

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    Cited by:

    1. Tillman, Peter, 2016. "Uncertainty about Federal Reserve Policy and Its Transmission to Emerging Economies: Evidence from Twitter," ADBI Working Papers 592, Asian Development Bank Institute.

    More about this item

    Keywords

    policy uncertainty; central banks; inflation expectations; structural VAR;

    JEL classification:

    • E02 - Macroeconomics and Monetary Economics - - General - - - Institutions and the Macroeconomy
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • E63 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Comparative or Joint Analysis of Fiscal and Monetary Policy; Stabilization; Treasury Policy
    • P16 - Economic Systems - - Capitalist Systems - - - Political Economy of Capitalism

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