We assess the effects of financial shocks on inflation, and to what extent financial shocks can account for the … shocks through sign restrictions. Our main finding is that expansionary financial shocks temporarily lower inflation. This … during the latest financial crisis. We then explore the transmission channels of financial shocks relevant for inflation, and …

consists of a self-fulfilling belief linking the stability of inflation to the smoothness of the interest rate path. A policy … focusing only on a fixed-horizon inflation forecast neglects the potential effects of this belief on the variance of inflation …