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

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  • Hassan Afrouzi
  • Joel P. Flynn
  • Choongryul Yang

Abstract

This paper studies how measured beliefs can be used to identify monetary non-neutrality. In a general equilibrium model with both nominal rigidities and endogenous information acquisition, we analytically characterize firms’ optimal dynamic information policies and how their beliefs affect monetary non-neutrality. We then show that data on the cross-sectional distributions of uncertainty and pricing durations are both necessary and sufficient to identify monetary non-neutrality. Finally, implementing our approach in New Zealand survey data, we find that informational frictions approximately double monetary non-neutrality and endogeneity of information is important: models with exogenous information would overstate monetary non-neutrality by approximately 50%.

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  • 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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    1. Jamie Hentall-MacCuish, 2024. "Costly attention and retirement," IFS Working Papers W24/59, Institute for Fiscal Studies.

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    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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