A0802
Title: Belief distortions and disagreement about inflation
Authors: Lorenza Rossi - University of Lancaster and University of Pavia (United Kingdom) [presenting]
Abstract: The aim is to investigate the macroeconomic effects of a belief distortion shock and an unexpected increase in the wedge between household and professional forecaster inflation expectations. Using survey and macro data alongside machine-learning techniques, this shock is identified and its effects are examined within and outside the ZLB, while conditioning on the degree of inflation disagreement. The shock increases unemployment during normal times, whereas it reduces it in the ZLB, when the monetary stance is accommodative. Inflation disagreement instead dampens the expansionary effects of the shock. A New Keynesian model with belief distortion shocks replicates these dynamics and reproduces the inflation disagreement empirical patterns.
