Research

Belief Distortions and Uncertainty about Inflation, with Stefano Fasani (Lancaster University), Lorenza Rossi (Lancaster University), and Giuseppe Pagano Giorgianni (Sapienza). SLIDES

Abstract: This paper studies the macroeconomic effects of an inflation belief shock—an unexpected increase in household inflation expectations relative to a full-information rational forecast. We identify the shock using machine-learning methods applied to U.S. survey data and a large set of news, macroeconomic, global, and financial variables. In normal times, the shock raises inflation while reducing consumption and increasing unemployment. At the zero lower bound, it lowers real interest rates, boosts consumption, and reduces unemployment. Inflation uncertainty rises in both regimes, dampening the expansionary effects at the ZLB. A theoretical model replicates these findings, highlighting the need for monetary policy to stabilize both inflation beliefs and uncertainty about inflation.

• Climate Change Uncertainty and the Cross-Section of Green and Brown Returns, with G. Curatola (University of Siena), M. Donadelli (University of Brescia), I. Gufler (LUISS), M. Z. Ammar (Sapienza)

Abstract: We examine whether climate uncertainty is consistently priced in the cross-section of brown and green equity portfolio returns. We employ multiple climate uncertainty proxies -- based on media coverage, policy uncertainty, social attention, and Google search trends -- and estimate risk premia across portfolios classified by ESG scores, carbon intensity, and sectoral transition exposure. The estimated premia vary in both sign and size across climate uncertainty proxies, with no consistent pricing differentials between green and brown assets and limited evidence of a conditional time structure. Mimicking portfolio tests highlight the proxy-dependent nature of climate risk in asset pricing.