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How Economic Crises Affect Inflation Beliefs: Evidence from the COVID-19 Pandemic

Author

Listed:
  • Olivier Armantier
  • Gizem Koşar
  • Rachel Pomerantz
  • Daphne Skandalis
  • Kyle Smith
  • Giorgio Topa
  • Wilbert Van der Klaauw

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.

Suggested Citation

  • Olivier Armantier & Gizem Koşar & Rachel Pomerantz & Daphne Skandalis & Kyle Smith & Giorgio Topa & Wilbert Van der Klaauw, 2020. "How Economic Crises Affect Inflation Beliefs: Evidence from the COVID-19 Pandemic," Staff Reports 949, Federal Reserve Bank of New York.
  • Handle: RePEc:fip:fednsr:89120
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    References listed on IDEAS

    as
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    6. Saten Kumar & Hassan Afrouzi & Olivier Coibion & Yuriy Gorodnichenko, 2015. "Inflation Targeting Does Not Anchor Inflation Expectations: Evidence from Firms in New Zealand," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 46(2 (Fall)), pages 151-225.
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    RePEc Biblio mentions

    As found on the RePEc Biblio, the curated bibliography for Economics:
    1. > Economics of Welfare > Health Economics > Economics of Pandemics > Specific pandemics > Covid-19 > Economic policy > Money and monetary policy

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    Cited by:

    1. , 2020. "The Impact of the COVID-19 Pandemic on Business Expectations," FRB Atlanta Working Paper 2020-17, Federal Reserve Bank of Atlanta.

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    More about this item

    Keywords

    inflation expectations; inflation uncertainty and disagreement; COVID-19 pandemic; COVID-19;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
    • E16 - Macroeconomics and Monetary Economics - - General Aggregative Models - - - Social Accounting Matrix

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