We identify innovations to trend inflation (rather than to inflation) using a standard trend-cycle model to investigate their aggregate and distributional effects. These innovations generate a persistent and sizable contraction in economic activity and are regressive. They harm poor households through the income and expenditure channels and benefit them through the asset holdings channel, and less so through the revaluation channel. We uncover a new operative channel for regressive trend inflation, the liability channel, which is claimed to be very relevant. Rich households raise their liabilities in order to smooth their consumption and reduce their real debt burden in the long run. Finally, we use an IV approach to extract trend inflation shocks driven by (i) oil supply news, (ii) monetary policy, and (iii) tax changes. Irrespective of the source, trend inflation shocks turn out to be regressive.
We estimate a model of long-run inflation expectations using panel data from the US Survey of Professional Forecasters (SPF). Professional forecasters are affected by common persistence bias and overconfidence in private information and these two deviations from rationality allow the model to account for the sluggish dynamics of expectations and the large and persistent disagreement in the SPF. Expectations respond negligibly to short-term changes in inflation and become less coordinated during the two zero-lower-bound episodes. At the end of 2022, the model correctly predicts that de-anchoring of US inflation expectations would not occur if inflation fell in 2023 as quickly as it actually did.
We provide evidence on how banks and non-bank financial intermediaries differ in their response to monetary policy. Our findings are based on a standard empirical macro model for the euro area, augmented with balance sheet data for banks and investment funds. The model is estimated via local projections, using high-frequency methods to identify different types of monetary policy shocks. Short-rate shocks lead to a significant balance sheet response of banks and investment funds, with a slightly swifter and more persistent reaction of banks. Long-rate shocks instead exert only short-lived effects on bank balance sheets, whereas investment fund balance sheets exhibit a stronger and more persistent response. The relative role of different types of financial intermediaries hence emerges as a relevant factor in shaping the transmission process for conventional and non-standard monetary policy measures.
This paper studies the effect of different types of monetary policy announcements on household inflation expectations based on micro data from a survey of German households. As a key feature, interviews of the survey were conducted both shortly before and after monetary policy events. This timing provides a natural experiment to identify the immediate effects of policy announcements on household inflation expectations. The availability of the survey over a period of 15 years further allows me to exploit the time-series dimension to estimate the medium-term effects of policy announcements. Policy rate announcements lead to quick and significant adjustments in household inflation expectations. Announcements about forward guidance and quantitative easing, by contrast, have no or only smaller and delayed effects.