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on Central Banking |
| By: | Pascal Paul; Mauricio Ulate; Jing Cynthia Wu |
| Abstract: | We develop a quantitative New Keynesian DSGE model to study the introduction of a central bank digital currency (CBDC): government-backed digital money available to retail consumers. At the heart of our model are monopolistic banks with market power in deposit and loan markets. When a CBDC is introduced, households benefit from an expansion of liquidity services and higher deposit rates as bank deposit market power is curtailed. However, deposits also flow out of the banking system and bank lending contracts. We assess this welfare trade-off for a wide range of economies that differ in their level of interest rates. We find substantial welfare gains from introducing a CBDC with an optimal interest rate that can be approximated by a simple rule of thumb: the maximum between 0% and the policy rate minus 1%. |
| Keywords: | central banks; digital currencies; banks; DSGE models; monetary policy; central bank |
| JEL: | E3 E4 E5 G21 G51 |
| Date: | 2024–04–08 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:98046&r=cba |
| By: | Vincenzo Cuciniello (Bank of Italy) |
| Abstract: | This paper presents novel time-varying estimates of the monetary policy rule as perceived by financial markets, focusing on days of heightened inflation-linked swap rate volatility corresponding to preliminary inflation release dates in the euro area. My findings reveal significant fluctuations in the perceived responsiveness of monetary policy to inflation, reflecting shifts in the ECB's concerns regarding price stability risks. Moreover, the sensitivity of this perceived responsiveness to monetary shocks varies based on prevailing inflation expectations, with tighter policy having a greater impact in high-inflation environments. Lastly, a stronger perceived monetary policy response to inflation enhances policy credibility by dampening the sensitivity of long-term inflation expectations to short-term fluctuations. |
| Keywords: | European Central Bank, monetary policy rule, credibility, financial market expectations, macroeconomic data releases |
| JEL: | E50 G10 C10 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1449_24&r=cba |
| By: | Christopher J. Erceg; Marcin Kolasa; Jesper Lindé; Mr. Haroon Mumtaz; Pawel Zabczyk |
| Abstract: | We study alternative approaches to the withdrawal of prolonged unconventional monetary stimulus (“exit strategies”) by central banks in large, advanced economies. We first show empirically that large-scale asset purchases affect the exchange rate and domestic and foreign term premiums more strongly than conventional short-term policy rate changes when normalizing by the effects on domestic GDP. We then build a two-country New Keynesian model that features segmented bond markets, cognitive discounting and strategic complementarities in price setting that is consistent with these findings. The model implies that quantitative easing (QE) is the only effective way to provide monetary stimulus when policy rates are persistently constrained by the effective lower bound, and that QE is likely to have larger domestic output effects than quantitative tightening (QT). We demonstrate that “exit strategies” by large advanced economies that rely heavily on QT can trigger sizeable inflation-output tradeoffs in foreign recipient economies through the exchange rate and term premium channels. We also show that these tradeoffs are likely to be stronger in emerging market economies, especially those with fixed exchange rates. |
| Keywords: | Monetary Policy; Quantitative Easing; International Spillovers |
| Date: | 2024–03–29 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2024/073&r=cba |
| By: | Christiaan van der Kwaak (University of Groningen) |
| Abstract: | High levels of government debt raise the question to what extent the private sector will be willing to absorb the additional government debt that would finance future fiscal stimuli. One alternative is to money-finance such stimuli by letting the central bank buy the additional bonds and permanently retain these on its balance sheet. In this paper, I investigate the effectiveness of such money-financed fiscal stimuli when the central bank pays interest on reserves, and focus on the case where reserves and bonds are not perfect substitutes. I show for several New Keynesian models that money-financed fiscal stimuli have zero macroeconomic impact with respect to debt-financed stimuli, despite reducing funding costs for the consolidated government. Finally, I investigate the quantitative impact of money-financed fiscal stimuli for an extension where this 'irrelevance result' is broken, and find that the impact is substantially smaller than in the literature. |
| Keywords: | Monetary Policy, Fiscal Policy, Monetary-Fiscal Interactions, Monetary financing |
| JEL: | E32 E52 E62 E63 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:cfm:wpaper:2417&r=cba |
| By: | Andriy Tsapin (National Bank of Ukraine; National University of Ostroh Academy); Oleksandr Faryna (National Bank of Ukraine; National University of Kyiv-Mohyla Academy) |
| Abstract: | Using survey data from the USAID Financial Sector Transformation Project, this paper examines whether or not financial literacy influences households' expectations about future prices and whether or not it anchors inflation expectations to the central bank's target. We find that higher financial literacy lowers average uncertainty about one-year inflation, but increases three-year inflation expectations. The results from quantile regressions confirm the asymmetric effects of financial literacy and its components on inflation. Inverse effects of financial literacy on expected inflation are at work for the upper end of the distribution (unanchored expectations), while positive effects are seen in the lower end of the distribution (anchored expectations). Our findings also suggest that financial literacy significantly improves inflation perceptions and the accuracy of individuals' predictions about inflation. The conclusions from this research are beneficial and have strong policy implications for the central bank's monetary policy. |
| Keywords: | c inflation expectations, inflation perceptions, financial literacy, monetary policy |
| JEL: | C81 D80 D82 E31 E52 E58 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:ukb:wpaper:02/2024&r=cba |
| By: | Zixuan Huang; Ms. Amina Lahreche; Mika Saito; Ursula Wiriadinata |
| Abstract: | E-money development has important yet theoretically ambiguous consequences for monetary policy transmission, because nonbank deposit-taking e-money issuers (EMIs) (e.g., mobile network operators) can either complement or substitute banks. Case studies of e-money regulations point to complementarity of EMIs with banks, implying that the development of e-money could deepen financial intermediation and strengthen monetary policy transmission. The issue is further explored with panel data, on both monthly (covering 21 countries) and annual (covering 47 countries) frequencies, over 2001 to 2019. We use a two-way fixed effect estimator to estimate the causal effects of e-money development on monetary policy transmission. We find that e-money development has accompanied stronger monetary policy transmission (measured by the responsiveness of interest rates to the policy rate), growth in bank deposits and credit, and efficiency gains in financial intermediation (measured by the lending-to-deposit rate spread). Evidence is more pronounced in countries where e-money development takes off in a context of limited financial inclusion. This paper highlights the potential benefits of e-money development in strengthening monetary policy transmission, especially in countries with limited financial inclusion. |
| Keywords: | Monetary policy transmission; banks; nonbank financial institutions; e-money; panel data |
| Date: | 2024–03–29 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:2024/069&r=cba |
| By: | Kopiec, Paweł |
| Abstract: | When central banks announce cuts to future interest rates, the expected costs of government debt service decrease, generating additional resources in future budgets. This paper demonstrates that if the rational-expectations assumption is dropped, fiscal authority can exploit those gains by spending them on future transfers and, by announcing those transfers to households today, can enhance the output effects of forward guidance. Employing a version of the New Keynesian setup featuring bounded rationality in the form of level-k thinking, I derive an analytical expression capturing the output effects of that additional fiscal announcement. Subsequently, a similar formula is derived in a tractable heterogeneous agent New Keynesian model with bounded rationality, uninsured idiosyncratic risk, and redistributive effects of transfers. Finally, I use these analytical insights to explore the effects of the forward-guidance-induced fiscal announcement in a fully-blown heterogeneous agent New Keynesian framework with level-k thinking calibrated to match US data. The findings suggest that fiscal communication can amplify the output effects of standard forward guidance by 66%. Moreover, those gains can reach 120% when the debt-to-GDP ratio doubles. This suggests that forward guidance enriched with fiscal announcements about future transfers can be considered an effective policy option when both monetary and fiscal policies are constrained, e.g., during liquidity trap episodes accompanied by high levels of public debt. |
| Keywords: | Forward Guidance, Monetary Policy, Fiscal Policy, Heterogeneous Agents, Bounded Rationality |
| JEL: | D31 D52 D81 E21 E43 E52 E58 |
| Date: | 2024–03–27 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:120563&r=cba |
| By: | Zan Fairweather (Reserve Bank of Australia); Denzil Fiebig (University of New South Wales); Adam Gorajek (Reserve Bank of Australia); Rochelle Guttmann (Reserve Bank of Australia); June Ma (Harvard University); Jack Mulqueeney (Reserve Bank of Australia) |
| Abstract: | This paper explores the merits of introducing a retail central bank digital currency (CBDC) in Australia, focusing on the extent to which consumers would value having access to a digital form of money that is even safer and potentially more private than commercial bank deposits. To conduct our exploration we run a discrete choice experiment, which is a technique designed specifically for assessing public valuations of goods without markets. The results suggest that the average consumer attaches no value to the added safety of a CBDC. This is consistent with bank deposits in Australia already being perceived as a safe form of money, and physical cash issued by the Reserve Bank of Australia continuing to be available as an alternative option. Privacy settings of a CBDC, which can take various forms, look more consequential for the CBDC value proposition. We find no clear relationship between safety or privacy valuations and the degree of consumers' cash use. |
| Keywords: | central bank digital currency; data privacy; financial safety; willingness to pay |
| JEL: | C90 E42 E50 G21 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:rba:rbardp:rdp2024-02&r=cba |
| By: | Mikel Bedayo (Banco de España); Jorge E. Galán (Banco de España) |
| Abstract: | The countercyclical capital buffer (CCyB) has become a very important macroprudential tool to strengthen banks’ resilience. However, there is still limited evidence of its impact on lending over the cycle. Using data of 170 banks in 25 European Union countries, we provide a comprehensive assessment of how the CCyB release during the pandemic and its earlier accumulation impacted lending activity. We find that the CCyB has significant effects on lending, but that these effects are highly dependent on banks’ capitalization levels and, more importantly, on their headroom over regulatory requirements. We show that the release of the CCyB in response to the pandemic had a positive impact on lending, especially for banks with the lowest headroom over requirements, and that this effect was larger than the negative impact of its previous accumulation. While the CCyB accumulation had a short-term negative impact on lending for the most capital-constrained banks, this effect quickly diluted due to their enhanced solvency position, potentially allowing them to lower their cost of equity. Our results provide evidence of the benefits of the CCyB, especially in supporting lending during adverse events, while emphasising the need for policymakers to consider the heterogeneous effects across banks when deploying this tool. |
| Keywords: | bank credit, capital buffers, COVID-19, macroprudential policy, capital regulation |
| JEL: | C32 E32 E58 G01 G28 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:2411&r=cba |
| By: | Daniel Ofori-Sasu (University of Ghana Business School); Elikplimi Komla Agbloyor (University of Ghana Business School); Dennis Nsafoah (Niagara University); Simplice A. Asongu (Johannesburg, South Africa) |
| Abstract: | This study examines the effect of regulatory independence of the central bank in shaping the impact of electoral cycles on bank lending behaviour in Africa. It employs the dynamic system Generalized Method of Moments (SGMM) Two-Step estimator for a panel dataset of 54 African countries over the period, 2004-2022. The study found that banks lend substantially higher during election years, and reduce lending patterns thereafter. The study shows that countries that enforce monetary policy autonomy of the central bank induce a negative impact on bank lending behaviour while those that apply strong macro-prudential independent action and central bank independence reduce lending in the long term. The study provides evidence to support that regulatory independence of the central bank dampens the positive effect of elections on bank lending around election years while they amplify the reductive effects on bank lending after election periods. There is a wake-up call for countries with weak independent central bank regulatory policy to strengthen their independent regulatory policy frameworks and political institutions. This will enable them better strategize to yield a desirable outcome of bank lending to the real economy during election years. |
| Keywords: | Political Economy; Political Credit Cycles, Electoral Cycle; Central Bank Regulatory Independence; Bank lending Behaviour |
| JEL: | D7 D72 G2 G3 E3 E5 E61 G21 L10 L51 M21 P16 P26 |
| Date: | 2024–01 |
| URL: | http://d.repec.org/n?u=RePEc:exs:wpaper:24/002&r=cba |
| By: | Ion Pohoață (UAIC - Alexandru Ioan Cuza University of Iași [Romania]); Delia-Elena Diaconașu (UAIC - Alexandru Ioan Cuza University of Iași [Romania]); Ioana Negru (ULBS - "Lucian Blaga" University) |
| Abstract: | This paper testifies to the fact that the proclaimed independence of central banks, as conceived by its founders, is nothing more than a chimera. We demonstrate that the hypothesis ‘inflation is a purely monetary phenomenon' does not substantiate the case for independence. Further, the portrayal of the conservative central banker, the imaginary principal-agent contract, the alleged financial autonomy, along with the ban on budgetary financing, amount to flawed logic in arguing for the independence of the central bank. We also highlight that the idea of independence is not convincing due to the absence of well-defined outlines in its operational toolbox and the system of rules it relies upon. |
| Keywords: | inflation, conservative banker, Principal-Agent contract, financial autonomy, budgetary financing |
| Date: | 2024–03–11 |
| URL: | http://d.repec.org/n?u=RePEc:hal:journl:hal-04183244&r=cba |
| By: | Stefania D'Amico; Max Gillet; Sam Schulhofer-Wohl; Tim Seida |
| Abstract: | We exploit the Fed’s Treasury purchases conducted from March 2020 to March 2022 to assess whether asset purchases can be tailored to accomplish different objectives: restoring market functioning and providing stimulus. We find that, on average, flow effects are significant in the market-functioning (MF) period (March-September 2020), while stock effects are strong in the QE period (September 2020-March 2022). In the MF period, the elevated frequency and size of the purchase operations allowed flow effects to greatly improve relative price deviations, especially at the long-end of the yield curve. But stock effects remained localized, thus not large enough to be stimulative. In contrast, in the QE period, stock effects were stimulative because cross-asset price impacts got larger as the Fed communication and implementation moved toward “traditional” QE, increasing purchases’ predictability. Lower uncertainty about the expected size and duration of total purchases facilitated their impounding into prices. Overall, these findings suggest that communication and implementation can be used to tailor the goals of asset purchases. |
| Keywords: | Monetary policy tools; Qualitative Easing; Asset purchases |
| JEL: | E43 E44 E52 E58 |
| Date: | 2024–03–26 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedhwp:98006&r=cba |
| By: | Nicolò Gnocato (Bank of Italy) |
| Abstract: | This paper studies the optimal conduct of monetary policy in the presence of heterogeneous exposure to energy price shocks between the employed and the unemployed, as it is documented by data from the euro-area Consumer Expectations Survey: higher energy prices weigh more on the unemployed, who consume less and devote a higher proportion of their consumption to energy. I account for this evidence into a tractable Heterogeneous-Agent New Keynesian (HANK) model with Search and Matching (S&M) frictions in the labour market, and energy as a complementary input in production and as a non-homothetic consumption good: energy price shocks weigh more on the jobless, who consume less due to imperfect unemployment insurance and, since preferences are non-homothetic, devote a higher share of this lower consumption to energy. Households' heterogeneous exposure to rising energy prices induces an endogenous trade-off for monetary policy, whose optimal response involves partly accommodating core inflation so as to indirectly sustain employment and, therefore, prevent workers from becoming more exposed to the shock through unemployment. |
| Keywords: | heterogeneous agents, New Keynesian, unemployment risk, energy shocks, optimal monetary policy, endogenous trade-off |
| JEL: | E21 E24 E31 E32 E52 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_1450_24&r=cba |
| By: | Bjarni G. Einarsson |
| Abstract: | The paper presents a method for online evaluation of the optimality of the current stance of monetary policy given the most up to date data available. The framework combines estimates of the causal effects of monetary policy tools on inflation and the unemployment gap with forecasts for these target variables. The forecasts are generated with a nowcasting model, incorporating new data as it becomes available, while using entropy tilting to anchor the long end of the forecast at long run survey expectations. In a retrospective analysis of the Fed's monetary policy decisions in the lead up to the Great Recession the paper finds rejections of the optimality of the policy stance as early as the beginning of February 2008. This early detection stems from the timely nowcasting of the deteriorating unemployment outlook. |
| JEL: | C01 C32 C52 C53 C55 E31 E32 E37 E52 E58 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:ice:wpaper:wp95&r=cba |
| By: | Lukas Schmid (Marshall School of Business, University of Southern California; Centre for Economic Policy Research (CEPR)); Vytautas Valaitis (University of Surrey); Alessandro T. Villa (Federal Reserve Bank of Chicago) |
| Abstract: | Can governments use Treasury Inflation-Protected Securities (TIPS) to tame inflation? We propose a novel framework of optimal debt management with sticky prices and a government issuing nominal and real state-uncontingent bonds. Nominal debt can be monetized giving ex-ante flexibility, whereas real bonds are cheaper but constitute a commitment ex-post. Under Full Commitment, the government chooses a leveraged and volatile portfolio of nominal liabilities and real assets to use inflation to smooth taxes. With No Commitment, it reduces borrowing costs ex-ante using a stable real debt share strategically to prevent future governments from monetizing debt ex-post. Such policies rationalize the small and persistent real debt share in U.S. data, with higher TIPS shares effectively curbing inflation. Reducing future governments’ temptation to monetize debt renders debt and inflation endogenously sticky. |
| Keywords: | Optimal Fiscal Policy, Monetary Policy, Debt Management, TIPS, Incomplete Markets, Inflation, Limited Commitment, Time-consistency, Markov-perfect Equilibria |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:cfm:wpaper:2413&r=cba |
| By: | João Granja; Erica Xuewei Jiang; Gregor Matvos; Tomasz Piskorski; Amit Seru |
| Abstract: | In the face of rising interest rates in 2022, banks mitigated interest rate exposure of the accounting value of their assets but left the vast majority of their long-duration assets exposed to interest rate risk. Data from call reports and SEC filings shows that only 6% of U.S. banking assets used derivatives to hedge their interest rate risk, and even heavy users of derivatives left most assets unhedged. The banks most vulnerable to asset declines and solvency runs decreased existing hedges, focusing on short-term gains but risking further losses if rates rose. Instead of hedging the market value risk of bank asset declines, banks used accounting reclassification to diminish the impact of interest rate increases on book capital. Banks reclassified $1 trillion in securities as held-to-maturity (HTM) which insulated these assets book values from interest rate fluctuations. More vulnerable banks were more likely to reclassify. Extending Jiang et al.’s (2023) solvency bank run model, we show that capital regulation could address run risk by encouraging capital raising, but its effectiveness depends on the regulatory capital definitions and can by eroded by the use of HTM accounting. Including deposit franchise value in regulatory capital calculations without considering run risk could weaken capital regulation’s ability to prevent runs. Our findings have implications for regulatory capital accounting and risk management practices in the banking sector. |
| JEL: | G2 G21 G28 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:32293&r=cba |
| By: | Shalva Mkhatrishvili (Head of Macroeconomics and Statistics Department, National Bank of Georgia); Douglas Laxton (NOVA School of Business and Economics, Saddle Point Research, The Better Policy Project); Tamta Sopromadze (Head of Monetary Policy Division, National Bank of Georgia); Mariam Tchanturia (Macroeconomic Research Division, National Bank of Georgia); Ana Nizharadze (Macroeconomic Research Division, National Bank of Georgia); Sergo Gadelia (Macroeconomic Research Division, National Bank of Georgia); Giorgi Gigineishvili (Macroeconomic Research Division, National Bank of Georgia); Jared Laxton (Economist at Advanced Macro Policy Modelling (AMPM)) |
| Abstract: | We advocate for a novel approach to decomposing the Consumer Price Index, critiquing the traditional core inflation distinction (which omits volatile items like food and energy) for lacking a solid economic basis. Our proposed method, inspired by practices in economies like the United States, New Zealand and Armenia, categorizes prices into "flexible, " which adjust quickly and are influenced by external factors, and "sticky" non-tradables, which adjust more slowly, offering a clearer view of medium-term inflation expectations. This approach underscores the importance of economic analysis over simplistic statistical methods that exclude volatile CPI components. It emphasizes the need for economists to understand the dynamics driving both sticky and flexible price inflation, with the latter often signifying initial signs of excess demand pressures. Recognizing the impact of dollarization, where exchange rate depreciations quickly affect nontraded sticky prices, becomes crucial. This understanding is vital for formulating monetary policies that prevent long-term inflation expectations from escalating, highlighting the significance of studying the interplay between exchange rate movements and domestic price dynamics in dollarized economies. |
| Keywords: | Non-tradable sticky prices; Monetary policy credibility; Core inflation |
| JEL: | E10 E31 E52 E58 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:aez:wpaper:2024-01&r=cba |
| By: | Adam Brzezinski; Nuno Palma; François R. Velde |
| Abstract: | Debates about the nature and economic role of money are mostly informed by evidence from the 20th century, but money has existed for millennia. We argue that there are many lessons to be learned from monetary history that are relevant for current topics of policy relevance. The past acts as a source of evidence on how money works across different situations, helping to tease out features of money that do not depend on one time and place. A close reading of history also offers testing grounds for models of economic behavior and can thereby guide theories on how money is transmitted to the real economy. |
| Keywords: | monetary policy, monetary history, natural experiments, policy experiments, identification in macroeconomics |
| JEL: | E40 E50 N10 |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:man:allwps:0004&r=cba |
| By: | Jun Hee Kwak (Department of Economics, Sogang University, Seoul, Korea) |
| Abstract: | I build a dynamic quantitative model in which both firms and the government can default. Rising endogenous corporate debt increases sovereign default risk, as tax revenues are expected to decrease. Externalities arise because it can be privately optimal but socially suboptimal for firms to default given their limited liability, rationalizing macroprudential interventions in corporate debt markets. I propose a set of such optimal policies that reduce the number of defaulting firms, increase fiscal space, and boost household consumption during financial crises. Contrary to conventional wisdom, countercyclical debt policy can be counterproductive, as the countercyclical policy induces more firmdefaults. |
| Keywords: | Sovereign Debt, Corporate Debt, Default, Macroprudential Policy, Externalities |
| JEL: | F34 F38 F41 E44 E61 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:sgo:wpaper:2306&r=cba |
| By: | Juliane Begenau; Saki Bigio; Jeremy Majerovitz; Matias Vieyra |
| Abstract: | We introduce a dynamic bank theory featuring delayed loss recognition and a regulatory capital constraint, aiming to match the bank leverage dynamics captured by Tobin’s Q. We start from four facts: (1) book and market equity values diverge, especially during crises; (2) Tobin’s Q predicts future bank profitability; (3) neither book nor market leverage constraints are strictly binding for most banks; and (4) bank leverage and Tobin’s Q are mean reverting but highly persistent. We demonstrate that delayed loss accounting rules interact with bank capital requirements, introducing a tradeoff between loan growth and financial fragility. Our welfare analysis implies that accounting rules and capital regulation should optimally be set jointly. This paper emphasizes the need to reconcile regulatory dependence on book values with the market’s emphasis on fundamental values to enhance understanding of banking dynamics and improve regulatory design. |
| Keywords: | Bank Leverage Dynamics, Market vs. Book Values, Accounting Rules, Bank Regulation, Financial Stability |
| Date: | 2024–04 |
| URL: | http://d.repec.org/n?u=RePEc:apc:wpaper:201&r=cba |
| By: | Paula Patzelt (London School of Economics (LSE); Centre for Macroeconomics (CFM)); Ricardo Reis (London School of Economics (LSE); Centre for Macroeconomics (CFM)) |
| Abstract: | When the price of electricity increases by 1%, households’ average expected inflation increases by 1.0 to 1.3 basis points. But, if those expectations have become unanchored, as happened between the start of 2021 and 2023, then the effect is higher by 0.2 to 1.6 basis points. This paper arrives at these estimates by exploiting variation both in the time series, and especially in the cross section, from newly-available public data on expected inflation by Euro area households across region, gender, education, and income, and on the cost of energy across region and source. The impact of exogenous shocks to energy prices on expected inflation increases for 8 to 12 months, but they can only account for a small share of the rise in expected inflation in 2021-23. |
| Keywords: | Great Inflation, Monetary policy, Inattention |
| JEL: | D84 E31 Q43 |
| Date: | 2024–03 |
| URL: | http://d.repec.org/n?u=RePEc:cfm:wpaper:2411&r=cba |