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Expectation formation following pandemic events

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  • An, Zidong
  • Liu, Dingqian
  • Wu, Yuzheng

Abstract

Previous studies find that the degree of information rigidity is negatively associated with natural disaster shocks, recessions, and high economic uncertainty, suggesting that the expectation formation process is state dependent. Matching a large panel data of macroeconomic forecasts to the pandemic data, this letter shows that the degree of information rigidity declines significantly following pandemic events, confirming that the expectation formation process is also driven by unexpected health shocks.

Suggested Citation

  • An, Zidong & Liu, Dingqian & Wu, Yuzheng, 2021. "Expectation formation following pandemic events," Economics Letters, Elsevier, vol. 200(C).
    • Handle: RePEc:eee:ecolet:v:200:y:2021:i:c:s0165176521000161
    DOI: 10.1016/j.econlet.2021.109739
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    References listed on IDEAS

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    1. Carola Binder, 2020. "Coronavirus Fears and Macroeconomic Expectations," The Review of Economics and Statistics, MIT Press, vol. 102(4), pages 721-730, October.
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    Cited by:

    1. Xu, Xin & Xu, Xiaoguang, 2023. "Monetary policy transmission modeling and policy responses," The North American Journal of Economics and Finance, Elsevier, vol. 64(C).

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    More about this item

    Keywords

    Expectation formation; Information rigidity; Forecast smoothing; Pandemic;
    All these keywords.

    JEL classification:

    • D83 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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