Abstract
Households’ inflation expectations are more responsive to inflationary news than to disinflationary news, and this asymmetry in expectations can cause downward wage rigidity. Asymmetric expectations imply that monetary policy can have asymmetric effects on employment and wages. I microfound asymmetric household expectations using ambiguity-aversion: households, who do not know the quality of their information, overweight inflationary news since it reduces their purchasing power, and underweight deflationary news since it increases their purchasing power. Although wages are downwardly rigid in this environment, monetary policy need not have a bias towards using inflation to grease the wheels of the labor market.
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