Nonlinearities With Deanchored Inflation Expectations
Abstract
ABSTRACT Using a nonlinear VAR, we examine the asymmetric effects of shocks to long‐run inflation expectations. Negative shocks, which temporarily lower long‐run inflation expectations, have a stronger and more persistent impact on output, investment, and firm entry compared to positive shocks. We provide a novel theoretical explanation, demonstrating how these shocks influence the second‐order components of the model, shaping firms' “wait‐and‐see” behavior—particularly along both the intensive and extensive margins of the investment channel.
Fields of Study & Subjects
Monetary Policy and Economic Impact
Economic theories and models
Economic Theory and Policy
Publication details
- Journal / source
- International Economic Review
- Volume
- 67
- Issue
- 3
- Pages
- 977–996
- Publication date
- 9 March 2026
- Language
- EN