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What Can Measured Beliefs Tell Us About Monetary Non-Neutrality?

Author

Listed:
  • Hassan Afrouzi
  • Joel P. Flynn
  • Choongryul Yang

Abstract

This paper studies how to use microeconomic data on beliefs and prices to identify the relative contributions of pricing and information frictions to monetary non-neutrality. In a canonical general equilibrium model with both pricing frictions and information acquisition, we analytically characterize how these frictions contribute to non-neutrality. Exploiting this characterization, we show that data on the cross-sectional distributions of uncertainty and pricing durations are necessary and sufficient to identify non-neutrality. Implementing our approach in survey data, we find that: (i) information and pricing frictions are approximately equally important, and (ii) assuming exogenous information would overstate non-neutrality by 60%.

Suggested Citation

  • Hassan Afrouzi & Joel P. Flynn & Choongryul Yang, 2024. "What Can Measured Beliefs Tell Us About Monetary Non-Neutrality?," NBER Working Papers 32541, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:32541
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    Cited by:

    1. Olivier Coibion & Yuriy Gorodnichenko, 2025. "Inflation, Expectations and Monetary Policy: What Have We Learned and to What End?," NBER Working Papers 33858, National Bureau of Economic Research, Inc.
    2. Jamie Hentall-MacCuish, 2024. "Costly attention and retirement," IFS Working Papers W24/59, Institute for Fiscal Studies.

    More about this item

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E71 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on the Macro Economy

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