Uncovering the heterogenous effects of news shocks to underlying inflation


We identify in a SVAR shocks that best explain future movements in different measures of underlying inflation over a five-year horizon and label them as news augmented shocks to underlying inflation. Independently of the measure used, such shocks raise the nominal rate and inflation persistently, while they induce mild and short-lived increases in economic activity. The extracted inflation shocks have differential distributional effects. They increase significantly and persistently the consumption of mortgagors and home owners. Differently from the traditional monetary policy disturbances, news augmented shocks to underlying inflation induce a positive wealth effect for mortgagors and home owners, driven by a reduction in the real mortgage payments and a persistent increase in real house prices that they induce.