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News and uncertainty about COVID-19: Survey evidence and short-run economic impact

Author

Listed:
  • Alexander M. Dietrich

    (University of Tübingen)

  • Keith Kuester

    (University of Bonn and CEPR)

  • Gernot J. Müller

    (University of Tübingen, CEPR and CESifo)

  • Raphael S. Schoenle

    (Brandeis University and Federal Reserve Bank of Cleveland, CEPR and CESifo)

Abstract

We solicit household expectations about the economic costs of the COVID-19 pandemic. Households expect output to decrease by about 6 percent and inflation to increase by 5 percentage points in the 12 months following March 2020. We also document that the uncertainty about the overall effect is large, both at the level of individual respondents and in terms of the dispersion across respondents. To the extent that the economic fallout of COVID-19 has not fully materialized yet, but is still a) anticipated and b) uncertain it depresses private expenditure and pushes the natural rate of interest downward. In the second part of the paper we quantify this effect as we feed our the survey data in a standard business cycle model. We find that the natural rate drops by several percentage points and illustrate to what extent the short-run impact of COVID-19 depends on the response of monetary policy.

Suggested Citation

  • Alexander M. Dietrich & Keith Kuester & Gernot J. Müller & Raphael S. Schoenle, 2020. "News and uncertainty about COVID-19: Survey evidence and short-run economic impact," ECONtribute Policy Brief Series 004, University of Bonn and University of Cologne, Germany.
    • Handle: RePEc:ajk:ajkpbs:004
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    More about this item

    Keywords

    COVID-19; Corona; Household expectations; Survey; News shocks; Uncertainty; Natural rate; Monetary Policy; Zero lower bound;
    All these keywords.

    JEL classification:

    • C83 - Mathematical and Quantitative Methods - - Data Collection and Data Estimation Methodology; Computer Programs - - - Survey Methods; Sampling Methods
    • E43 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Interest Rates: Determination, Term Structure, and Effects
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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