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Inflationary household uncertainty shocks

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  • Ambrocio, Gene

Abstract

I construct a novel measure of household uncertainty based on survey data for European countries. I show that household uncertainty shocks are not universally like negative demand shocks. Notably, household uncertainty shocks are largely inflationary in Europe. These results lend support to a pricing bias mechanism as an important transmission channel. A comparison of results across countries suggest that demographics and factors related to average markups along with monetary policy play a role in the transmission of household uncertainty to inflation. I develop an Overlapping Generations New Keynesian model with Deep Habits to rationalize these results.

Suggested Citation

  • Ambrocio, Gene, 2020. "Inflationary household uncertainty shocks," Bank of Finland Research Discussion Papers 5/2020, Bank of Finland.
    • Handle: RePEc:zbw:bofrdp:rdp2020_005
    Note: A revised version published on 14 Feb 2022 is available as BoF DP 5/2022.
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    2. Tymofii Brik & Maksym Obrizan, 2020. "Job market effects of COVID-19 on urban Ukrainian households," Papers 2007.15704, arXiv.org.
    3. Ambrocio, Gene, 2020. "European household and business expectations during COVID-19: Towards a v-shaped recovery in confidence?," BoF Economics Review 6/2020, Bank of Finland.

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    More about this item

    Keywords

    uncertainty; inflation; household expectations; deep habits; demographics;
    All these keywords.

    JEL classification:

    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E20 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - General (includes Measurement and Data)
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • 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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