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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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