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Topic:
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Inflation Disagreement Weakens the Power of Monetary Policy |
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Time&Date:
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10:00 am -11:30 am, January 3, 2025 (Friday)
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Venue
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Ding Dong
Hong Kong Baptist University
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Speaker:
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Room 904, Teaching Complex D Building
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| Abstract: |
Household inflation disagreement weakens the impact of forward guidance and monetary policy shocks, especially when inflation forecasts are positively skewed. This attenuation effect is not driven by endogenous responses of inflation disagreement to contemporaneous shocks. A model with heterogeneous beliefs about the central bank’s inflation target explains these observations. Agents expecting higher future inflation perceive lower real interest rates and borrow more, constrained by borrowing limits. Increased inflation disagreement results in more borrowing-constrained agents, leading to slower aggregate consumption responses to interest rate changes. This mechanism also provides a microeconomic foundation for Euler equation discounting, helping to resolve the forward guidance puzzle.
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Biography:
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Dr. Ding Dong is an assistant professor of economics at Hong Kong Baptist University. His research focuses on information friction and financial friction in macroeconomics, i.e. the aggregate and distributional impacts of uncertainty and belief disagreement. He has published in the Journal of Economic Theory and served as a referee for the Economic Journal, Journal of Economic Dynamics and Control, and Journal of Mathematical Economics.
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