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Political Shocks and Inflation Expectations: Evidence from the 2022 Russian Invasion of Ukraine

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  • Lena Dräger
  • Klaus Gründler
  • Niklas Potrafke

Abstract

How do global political shocks influence individuals’ expectations about economic outcomes? We run a unique survey on inflation expectations among 145 tenured economics professors in Germany and exploit the 2022 Russian invasion in Ukraine as a natural experiment to identify the effect of a global political shock on expectations about national inflation rates. We find that the Russian invasion increased short-run inflation expectations for 2022 by 0.75 percentage points. Treatment effects are smaller regarding mid-term expectations for 2023 (0.47 percentage points) and are close to zero for longer periods. Comparing the results to a representative sample of households, we find that the treatment effects are twice as large for experts than for households. Text analysis of open questions shows that experts increase their inflation expectations because they expect supply-side effects to become increasingly important after the invasion. Moreover, we find that the treatment substantially changed monetary policy recommendations.

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  • Lena Dräger & Klaus Gründler & Niklas Potrafke, 2022. "Political Shocks and Inflation Expectations: Evidence from the 2022 Russian Invasion of Ukraine," CESifo Working Paper Series 9649, CESifo.
    • Handle: RePEc:ces:ceswps:_9649
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    Cited by:

    1. Jerg Gutmann & Hans Pitlik & Andrea Fronaschütz, 2023. "Has the Russian invasion of Ukraine reinforced anti-globalization sentiment in Austria?," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 50(2), pages 289-299, May.
    2. Afunts, Geghetsik & Cato, Misina & Schmidt, Tobias, 2023. "Inflation Expectations in the Wake of the War in Ukraine," VfS Annual Conference 2023 (Regensburg): Growth and the "sociale Frage" 277577, Verein für Socialpolitik / German Economic Association.
    3. Nils D. Steiner & Ruxanda Berlinschi & Etienne Farvaque & Jan Fidrmuc & Philipp Harms & Alexander Mihailov & Michael Neugart & Piotr Stanek, 2023. "Rallying around the EU flag: Russia's invasion of Ukraine and attitudes toward European integration," Journal of Common Market Studies, Wiley Blackwell, vol. 61(2), pages 283-301, March.
    4. Dorine Boumans & Klaus Gründler & Niklas Potrafke & Fabian Ruthardt, 2022. "Political Leaders and Macroeconomic Expectations: Evidence from a Global Survey Experiment," CESifo Working Paper Series 9974, CESifo.
    5. Behnam Zakeri & Katsia Paulavets & Leonardo Barreto-Gomez & Luis Gomez Echeverri & Shonali Pachauri & Benigna Boza-Kiss & Caroline Zimm & Joeri Rogelj & Felix Creutzig & Diana Ürge-Vorsatz & David G. , 2022. "Pandemic, War, and Global Energy Transitions," Energies, MDPI, vol. 15(17), pages 1-23, August.
    6. An, Zidong & Binder, Carola & Sheng, Xuguang Simon, 2023. "Gas price expectations of Chinese households," Energy Economics, Elsevier, vol. 120(C).
    7. Aharon, David Y. & Aziz, Mukhriz Izraf Azman & Nor, Safwan Mohd, 2023. "Cross-country study of the linkages between COVID-19, oil prices, and inflation in the G7 countries," Finance Research Letters, Elsevier, vol. 57(C).
    8. Rico Ihle & Ziv Bar‐Nahum & Oleg Nivievskyi & Ofir D. Rubin, 2022. "Russia’s invasion of Ukraine increased the synchronisation of global commodity prices," Australian Journal of Agricultural and Resource Economics, Australian Agricultural and Resource Economics Society, vol. 66(4), pages 775-796, October.
    9. Dräger, Lena & Lamla, Michael J., 2023. "Consumers' Macroeconomic Expectations," Hannover Economic Papers (HEP) dp-714, Leibniz Universität Hannover, Wirtschaftswissenschaftliche Fakultät.
    10. Conces Binder, Carola & Campbell, Jeffrey & Ryngaert, Jane, 2022. "Consumer Inflation Expectations: Daily Dynamics," MPRA Paper 117628, University Library of Munich, Germany.

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    More about this item

    Keywords

    inflation expectations; belief formation; natural experiment; 2022 Russian invasion of Ukraine; survey; economic experts;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E71 - Macroeconomics and Monetary Economics - - Macro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on the Macro Economy
    • D74 - Microeconomics - - Analysis of Collective Decision-Making - - - Conflict; Conflict Resolution; Alliances; Revolutions
    • D84 - Microeconomics - - Information, Knowledge, and Uncertainty - - - Expectations; Speculations

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