Monetary policy uncertainty and inflation expectations


Do inflation expectations react to changes in the volatility of monetary policy? Yes, but only until the global financial crisis. This paper investigates whether increasing the dispersion of monetary policy shocks, which is interpreted as elevated uncertainty surrounding monetary policy, affects the inflation expectation formation process. Based on U.S. data since the 1980s and a stochastic volatility-in-mean structural VAR model we find that monetary policy uncertainty reduces both inflation expectations and inflation. However, after the Great Recession this link has disappeared, even when controlling for the Zero Lower Bound.

Ruhr Economic Papers No. 899
Boris Blagov
Boris Blagov

My research area is applied Macroeconomics, particularly using cutting edge mathematical models to analyse economic relationships and create better forecasts.