This paper shows that the optimal monetary policies recommended by New Keynesian models still imply a large amount of inflation risk. We calculate the term structure of inflation uncertainty in New Keynesian models when the monetary authority adopts the optimal policy. When the monetary policy...

How does competition affect information acquisition of firms and thus the response of inflation and output to monetary policy shocks? This paper addresses these questions in a new dynamic general equilibrium model with both dynamic rational inattention and oligopolistic competition. In the...

Inflation is often associated with a loss for the poor in the medium and long run. The cyclical effects are basically unknown. We study this question in a dynamic optimizing sticky price model. Agents are heterogeneous with regard to their age and their productivity. We emphasize three channels...

Using a rich survey panel dataset of Italian businesses, this paper provides new empirical evidence on the drivers of firms' pricing decisions over the last six years. We document a set of interesting results. First, the share of firms adjusting their prices in each period co-moves with current...

Using a rich survey panel of Italian businesses, this paper provides new empirical evidence on the drivers of firms’ pricing decisions over the last six years. We document a set of interesting results. First, the share of firms adjusting their prices in each period co-moves with current...

This comprehensive study delves into the Harmonised Consumer Price Index (HCPI) behavior across European economies from the early 2000s to the post-pandemic period. By analyzing the patterns of convergence and divergence in HCPI persistence, the study aims to uncover the common external and...

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...

Macroeconomic models often invoke consumption "habits" to explain the substantial persistence of macroeconomic consumption growth. But a large literature has found no evidence of habits in the microeconomic datasets that measure the behavior of individual households. We show that the apparent...

In this paper we integrate heterogeneous inflation expectations into a simple monetary model. Guided by empirical evidence we assume that boundedly rational agents, selecting between extrapolative and regressive forecasting rules to predict the future inflation rate, prefer rules that have...

This paper investigates the accuracy and heterogeneity of output growth and inflation forecasts during the current and the four preceding NBER-dated U.S. recessions. We generate forecasts from six different models of the U.S. economy and compare them to professional forecasts from the Federal...