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Uncertainty shocks, inflation dynamics and monetary policy

Uncertainty shocks, inflation dynamics and monetary policy

Objective

This research project studies the macroeconomic dynamics in response to uncertainty shocks. The focus is on dynamics of price inflation and how it might change according to the stance of the monetary policy. The project aims i) to fill a gap in the macroeconomic literature, by delivering a conclusive interpretation of uncertainty shocks as either inflationary or deflationary, and ii) to provide a reference for policy-makers in conducting the monetary policy and managing the macroeconomic effects of uncertainty shocks. The research question is preeminent for the case of the Euro Area, where despite a common monetary policy, economies face an idiosyncratic degree of uncertainty, that is affected by both country-specific developments and shocks hitting the major partners, like the US and the UK. The research question will be investigated in two distinct papers, namely Paper A and Paper B, that aim to be published in international peer-reviewed top-field journals. Paper A will provide a theoretical analysis, i.e. DSGE model-based analysis, about the inflation effects to uncertainty shocks under different specifications of the monetary policy. Paper B will consider different time-series models to focus the data-implied response of inflation to uncertainty shocks under different degrees of monetary policy smoothing. For both papers, I will consider the data of the U.S. economy -as the benchmark case- and of the major economies in the Euro Area. The comparison with the U.S. case will be instructive on how the combination of heterogenous uncertainty and common monetary policy affects the dynamics of Euro Area country-specific inflation.
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Coordinator

QUEEN MARY UNIVERSITY OF LONDON

Address

327 Mile End Road
E1 4ns London

United Kingdom

Activity type

Higher or Secondary Education Establishments

EU Contribution

€ 224 933,76

Project information

Grant agreement ID: 840187

Status

Grant agreement signed

  • Start date

    1 November 2019

  • End date

    31 October 2021

Funded under:

H2020-EU.1.3.2.

  • Overall budget:

    € 224 933,76

  • EU contribution

    € 224 933,76

Coordinated by:

QUEEN MARY UNIVERSITY OF LONDON

United Kingdom