Comparing the inflationary impacts of uncertainty between advanced and emerging economies

This paper quantifies the impact of uncertainty shocks on inflation by distinguishing their effect through aggregate supply and demand adjustments for 34 advanced and emerging economies. Methodologically, this quantification starts by identifying structural aggregate supply and demand shocks and evaluating their impacts on output growth and inflation. Results show that uncertainty shocks prompt responses on both sides of the market by shifting aggregate demand and supply curves leftward. The aggregate demand leftward shift causes similar deflationary pressures across all countries. However, the inflationary pressures from the aggregate supply contraction are significantly larger in emerging than in advanced economies.