How Economic Crises Affect Inflation Beliefs: Evidence from the COVID-19 Pandemic

Olivier Armantier, Gizem Kosar, Rachel Pomerantz, Daphne Skandalis, Kyle Smith, Giorgio Topa and Wilbert van der Klaauw

No 949, Staff Reports from Federal Reserve Bank of New York

Abstract: This paper studies how inflation beliefs reported in the New York Fed’s Survey of Consumer Expectations have evolved since the start of the COVID-19 pandemic. We find that household inflation expectations responded slowly and mostly at the short-term horizon. In contrast, the data reveal immediate and unprecedented increases in individual inflation uncertainty and in inflation disagreement across respondents. We find evidence of a strong polarization in inflation beliefs and we show differences across demographic groups. Finally, we document a strong link, consistent with precautionary saving, between inflation uncertainty and how respondents used the stimulus checks they received as part of the 2020 CARES Act.

Keywords: inflation expectations; inflation uncertainty and disagreement; COVID-19 (search for similar items in EconPapers)
JEL-codes: E16 E21 E31 (search for similar items in EconPapers)
Pages: 40
Date: 2020-11-01
New Economics Papers: this item is included in nep-mac and nep-mon
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Citations: View citations in EconPapers (7)

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Journal Article: How economic crises affect inflation beliefs: Evidence from the Covid-19 pandemic (2021)
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