IDEAS home Printed from https://ideas.repec.org/p/aoz/wpaper/287.html

Household Perceived Sources of Business Cycle Fluctuations: a Tale of Supply and Demand

Author

Listed:
  • Clodomiro Ferreira

    (Bank of Spain)

  • Stefano Pica

    (Bank of Italy)

Abstract

We study the joint behavior of households’ survey expectations for a wide range of macroeconomic and individual-level variables in the largest six euro area countries, both in the cross-section and time series. Although households disagree, their expectations are correlated in the cross-section. Two principal components explain a significant portion of the variance of all expectations. These components capture households’ perceptions of the sources of macroeconomic dynamics, with the first capturing supply-side views and the second component reflecting demand-side views. This structure of perceptions and disagreement is stable across countries and time and does not vary with demographic or socioeconomic characteristics. We then use these insights to identify two common factors driving expectations over time. The factors co-move strongly with measures of supply and demand disturbances and align well with a narrative based on increasing perceived inflationary pressures coming from supply after the invasion of Ukraine in February 2022.

Suggested Citation

  • Clodomiro Ferreira & Stefano Pica, 2023. "Household Perceived Sources of Business Cycle Fluctuations: a Tale of Supply and Demand," Working Papers 287, Red Nacional de Investigadores en Economía (RedNIE).
    • Handle: RePEc:aoz:wpaper:287
    as

    Download full text from publisher

    File URL: https://rednie.eco.unc.edu.ar/files/DT/287.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Olivier Coibion & Dimitris Georgarakos & Yuriy Gorodnichenko & Geoff Kenny & Michael Weber, 2024. "The Effect of Macroeconomic Uncertainty on Household Spending," American Economic Review, American Economic Association, vol. 114(3), pages 645-677, March.
    2. Georgarakos, Dimitris & Kenny, Geoff, 2022. "Household spending and fiscal support during the COVID-19 pandemic: Insights from a new consumer survey," Journal of Monetary Economics, Elsevier, vol. 129(S), pages 1-14.
    3. Rupal Kamdar, 2019. "The Inattentive Consumer: Sentiment and Expectations," 2019 Meeting Papers 647, Society for Economic Dynamics.
    4. Pablo Burriel & Iván Kataryniuk & Carlos Moreno Pérez & Francesca Viani, 2024. "A New Supply Bottlenecks Index Based on Newspaper Data," International Journal of Central Banking, International Journal of Central Banking, vol. 20(2), pages 17-67, April.
    5. Robert J. Shiller, 1997. "Why Do People Dislike Inflation?," NBER Chapters, in: Reducing Inflation: Motivation and Strategy, pages 13-70, National Bureau of Economic Research, Inc.
    6. Sandra Eickmeier & Boris Hofmann, 2025. "What Drives Inflation? Disentangling Demand and Supply Factors," International Journal of Central Banking, International Journal of Central Banking, vol. 21(3), pages 111-154, July.
    7. Stock, James H. & Watson, Mark W., 2014. "Estimating turning points using large data sets," Journal of Econometrics, Elsevier, vol. 178(P2), pages 368-381.
    8. Edward P. Herbst & Fabian Winkler, 2021. "The Factor Structure of Disagreement," Finance and Economics Discussion Series 2021-046, Board of Governors of the Federal Reserve System (U.S.).
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Clodomiro Ferreira & Stefano Pica, 2024. "Household perceptions of the sources of business cycle fluctuations: a tale of supply and demand," Temi di discussione (Economic working papers) 1441, Bank of Italy, Economic Research and International Relations Area.
    2. Georgarakos, Dimitris & Kenny, Geoff & Laeven, Luc & Meyer, Justus, 2025. "Consumer attitudes towards a central bank digital currency," Working Paper Series 3035, European Central Bank.
    3. Michael Weber & Francesco D'Acunto & Yuriy Gorodnichenko & Olivier Coibion, 2022. "The Subjective Inflation Expectations of Households and Firms: Measurement, Determinants, and Implications," Journal of Economic Perspectives, American Economic Association, vol. 36(3), pages 157-184, Summer.
    4. Anmol Bhandari & Jaroslav Borovička & Paul Ho, 2025. "Survey Data and Subjective Beliefs in Business Cycle Models," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 92(3), pages 1375-1437.
    5. Georgarakos, Dimitris & Kim, Kwang Hwan & Coibion, Olivier & Shim, Myungkyu & Lee, Myunghwan Andrew & Gorodnichenko, Yuriy & Kenny, Geoff & Han, Seowoo & Weber, Michael, 2025. "How Costly Are Business Cycle Volatility and Inflation? A Vox Populi Approach," IZA Discussion Papers 17675, IZA Network @ LISER.
    6. Peter Andrebriq & Carlo Pizzinelli & Christopher Roth & Johannes Wohlfart, 2022. "Subjective Models of the Macroeconomy: Evidence From Experts and Representative Samples," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 89(6), pages 2958-2991.
    7. Schnorpfeil, Philip & Weber, Michael & Hackethal, Andreas, 2025. "Inflation and Trading," Journal of Financial Economics, Elsevier, vol. 173(C).
    8. Erwan Gautier & Jérémi Montornès, 2025. "Measuring Households' Inflation Expectations in the Euro Area: The Effect of Panel Conditioning," Working papers 1007, Banque de France.
    9. Nickel, Christiane & Kilponen, Juha & Moral-Benito, Enrique & Koester, Gerrit & Ciccarelli, Matteo & Enders, Almira & Holton, Sarah & Landau, Bettina & Venditti, Fabrizio & Bobeica, Elena & Brand, Cla, 2025. "A strategic view on the economic and inflation environment in the euro area," Occasional Paper Series 371, European Central Bank.
    10. Michael Ehrmann, 2026. "Trust in Central Banks," Journal of Economic Surveys, Wiley Blackwell, vol. 40(1), pages 492-504, February.
    11. Binetti, Alberto & Nuzzi, Francesco & Stantcheva, Stefanie, 2024. "People’s understanding of inflation," Journal of Monetary Economics, Elsevier, vol. 148(S).
    12. Michal Marencak, 2023. "State-dependent inflation expectations and consumption choices," Working and Discussion Papers WP 10/2023, Research Department, National Bank of Slovakia.
    13. Olivier Coibion & Dimitris Georgarakos & Yuriy Gorodnichenko & Maarten van Rooij, 2023. "How Does Consumption Respond to News about Inflation? Field Evidence from a Randomized Control Trial," American Economic Journal: Macroeconomics, American Economic Association, vol. 15(3), pages 109-152, July.
    14. Pieter Nel & Renee van Eyden, 2026. "From News to Noise: Does Media Sentiment Drive Stock Market Volatility?," Working Papers 202605, University of Pretoria, Department of Economics.
    15. Dräger, Lena & Lamla, Michael J. & Pfajfar, Damjan, 2020. "The Hidden Heterogeneity of Inflation and Interest Rate Expectations: The Role of Preferences," Hannover Economic Papers (HEP) dp-666, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät, revised Feb 2023.
    16. Aastveit, Knut Are & Jore, Anne Sofie & Ravazzolo, Francesco, 2016. "Identification and real-time forecasting of Norwegian business cycles," International Journal of Forecasting, Elsevier, vol. 32(2), pages 283-292.
    17. Beatrice Ferrario & Stefanie Stantcheva, 2025. "How Americans Think About Health Care and Insurance," NBER Chapters, in: Tax Policy and the Economy, Volume 40, National Bureau of Economic Research, Inc.
    18. Ehrmann, Michael & Tzamourani, Panagiota, 2012. "Memories of high inflation," European Journal of Political Economy, Elsevier, vol. 28(2), pages 174-191.
    19. Janet L. Yellen, 2015. "Inflation Dynamics and Monetary Policy : A speech at the Philip Gamble Memorial Lecture, University of Massachusetts, Amherst, Amherst, Massachusetts, September 24, 2015," Speech 863, Board of Governors of the Federal Reserve System (U.S.).
    20. Stanley Fischer, 1996. "Why are central banks pursuing long-run price stability?," Proceedings - Economic Policy Symposium - Jackson Hole, Federal Reserve Bank of Kansas City, pages 7-34.

    More about this item

    Keywords

    ;
    ;
    ;
    ;
    ;
    ;

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:aoz:wpaper:287. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Laura Inés D Amato (email available below). General contact details of provider: https://edirc.repec.org/data/redniar.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.