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On looking through sectoral shocks: The role of (de-)anchored inflation expectations

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  • Gerke, Rafael
  • Röttger, Joost

Abstract

How does a possible de-anchoring of inflation expectations alter the conventional monetary policy prescription of look- ing through sectoral shocks? To answer this question, we study optimal monetary policy in a multisector New Keyne- sian model extended to allow for endogenous long-run inflation expectations. We find that the risk of de-anchoring does not change the key policy trade-offs. It remains optimal for monetary policy to stabilise the output gap and inflation in sectors with stickier prices, confirming previous findings in the literature. Moreover, output and inflation dynamics are both hardly affected by a possible de-anchoring. This contrasts with the nominal interest rate response required to achieve these outcomes, which is more aggressive when there is a risk of de-anchoring. These findings reflect an asymmetry in the pass-through of inflation expectations to firms' price-setting and households' consumption decisions, with the latter being stronger than the former.

Suggested Citation

  • Gerke, Rafael & Röttger, Joost, 2026. "On looking through sectoral shocks: The role of (de-)anchored inflation expectations," Discussion Papers 27/2026, Deutsche Bundesbank.
    • Handle: RePEc:zbw:bubdps:344524
    DOI: 10.71734/DP-2026-27
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    JEL classification:

    • C67 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Input-Output Models
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E70 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - General

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