Uncertainty and Change: Survey Evidence of Firms' Subjective Beliefs

Thu, 01 Jan 2026 00:00:00 +0000

Research question and motivation: A large literature shows that firms perceiving more uncertainty make more cautious intertemporal decisions (investment, hiring, price setting), but it is far less clear what makes firms uncertain in the first place. Macro models typically impose rational expectations and treat uncertainty as exogenous shocks to the conditional volatility of fundamentals. The paper asks how subjective uncertainty arises and evolves, and whether it is the same object as conditional volatility.

Inflation and the Redistribution of Nominal Wealth

This paper quantifies how an unanticipated bout of moderate inflation, similar in magnitude to the U.S. experience of the 1970s, would redistribute wealth by revaluing nominal (dollar-denominated) assets and liabilities. Combining sector-level data from the Flow of Funds Accounts with household-level data from the Survey of Consumer Finances, the authors construct market-value nominal positions – including indirect positions arising from ownership of financial intermediaries and firms – and their maturity/duration structure for every major class of U.S. nominal asset and liability, then simulate a hypothetical episode of 5 percentage points of extra inflation per year for 10 years starting from a given benchmark year. Because agents’ actual expectations and portfolio-adjustment speed are unobserved, the paper brackets the results between two polar scenarios: “Full Surprise,” in which nominal positions are devalued uniformly regardless of maturity, and “Indexing ASAP,” in which bond markets immediately price in the full future inflation path so only shorter-duration positions bear large losses. Under both scenarios and across benchmark years, the government and (since the 1980s) domestic households gain at the expense of foreign holders of U.S. nominal assets, and within the household sector old, wealthy, bond-holding households lose to young, middle-class households with fixed-rate mortgage debt; for the benchmark year 1989, the paper’s central estimates put the loss to a coalition of rich and old households at 5.7-15.2 percent of GDP and the gain to under-45 middle-class households at up to 45 percent of mean cohort net worth. The paper also documents that financial innovation – chiefly the securitization of mortgages beginning in the early 1980s – roughly halved the surprise-inflation losses of elderly households between the 1989 and 2001 benchmark years by shifting maturity mismatch away from bank/intermediary shareholders and toward long-term bondholders, while leaving households’ exposure to gradual (anticipated) inflation comparatively unchanged. Throughout, the authors are explicit that these are the redistributional effects of revaluing already-existing nominal positions alone, not a full general-equilibrium assessment of inflation’s real effects, and they flag the study of how this redistribution shock feeds back into aggregate consumption, saving, and labor supply, and how fiscal policy might offset it, as questions for companion work rather than this paper.

Martin Schneider | Macro Paper Warehouse

Uncertainty and Change: Survey Evidence of Firms' Subjective Beliefs

Inflation and the Redistribution of Nominal Wealth