Title: Less bang for the buck? Assessing the role of inflation uncertainty for U.S. monetary policy transmission
Authors: Hannes Rohloff - University Goettingen (Germany) [presenting]
Helmut Herwartz - Georg-August-University Goettingen (Germany)
Abstract: The relationship between inflation uncertainty and monetary policy transmission in the U.S. economy is investigated. Monetary policy shocks are identified within the framework of nonlinear structural factor-augmented VARs which allow us to analyze several complementary hypotheses connecting inflation uncertainty with reduced monetary policy effectiveness. We find that the real effects of monetary policy shocks are markedly dampened conditional on high inflation uncertainty. This can be traced back to, inter alia, real-option and precautionary savings effects which distort the traditional interest rate channel. Moreover, policy transmission through the external finance premium and the term structure of interest rates appears strongly dependent on inflation uncertainty.