Financial shocks and inflation dynamics

Arbeitspapier

We assess the effects of financial shocks on inflation, and to what extent financial shocks can account for the "missing disinflation" during the Great Recession. We apply a vector autoregressive model to US data and identify financial shocks through sign restrictions. Our main finding is that expansionary financial shocks temporarily lower inflation. This result withstands a large battery of robustness checks. Moreover, negative financial shocks helped preventing a deflation during the latest financial crisis. We then explore the transmission channels of financial shocks relevant for inflation, and find that the cost channel can explain the inflation response. A policy implication is that financial shocks that move output and inflation in opposite directions may worsen the trade-off for a central bank with a dual mandate.

Angaben zum Objekt

• ISBN: 978-3-95729-310-7
• Sprache: Englisch

Verweise und Beziehungen

• Erschienen in: Series: Bundesbank Discussion Paper ; No. 41/2016

Klassifikation und Themen

• Klassifikation: Wirtschaft ; Price Level; Inflation; Deflation ; Financial Markets and the Macroeconomy ; Central Banks and Their Policies
• Thema: financial shocks ; inflation dynamics ; monetary policy ; financial frictions ; cost channel ; sign restrictions

Beteiligte, Orts- und Zeitangaben

• Ereignis: Geistige Schöpfung
• (wer): Abbate, Angela ; Eickmeier, Sandra ; Prieto, Esteban
• Ereignis: Veröffentlichung
• (wer): Deutsche Bundesbank
• (wo): Frankfurt a. M.
• (wann): 2016

Weitere Informationen

• Handle: http://hdl.handle.net/10419/147011
• Letzte Aktualisierung: 10.03.2025, 11:43 MEZ