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, prompting them to raise markups and prices in anticipation of potentially higher future inflation. These findings establish a … connection between heightened uncertainty, higher core inflation, and increased profits. …
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At the zero lower bound (ZLB), expectations about the future path of monetary or fiscal policy are crucial. We model expectations formation under level-k thinking, a form of bounded rationality introduced by García-Schmidt and Woodford (2019) and Farhi and Werning (2017), consistent with...
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