How economic crises affect inflation beliefs: Evidence from the Covid-19 pandemic

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.

Understanding Consumer Inflation Expectations during the COVID‐19 Pandemic

“…Our approach in using state-level containment measure refines the approach employed by Armantier et al (2021). They identify possible changes during the pandemic by partitioning the post-pandemic data into five periods that are applied uniformly across all states in the United States.…”

“…We also examine a cross-sectional dimension of the data with particular attention to demographic aspects such as education and high income. Our results are in line with those of Armantier et al (2021), suggesting no substantial heterogeneities in the effect of the crisis.…”

“…The implemented measures were not homogeneous, such that we leverage their variation between states and across time to identify their impact on inflation expectations and inflation uncertainty. Our main contribution is that we improve upon Armantier et al ( 2021 ), who examine how inflation beliefs in the SCE evolved over five specific phases during the first six months of the COVID‐19 pandemic.…”

“…Armantier et al, 2021 for a similar treatment). The baseline characteristics are education at high school level, household income of below USD50K, below 40 years old, female, married, low financial literacy and excellent reported health.…”

An analysis of the blockchain and COVID-19 research landscape using a bibliometric study

“…The analysis of demand and supply factors driving disaggregated price developments and the implications for general inflation has been studied by different authors ( Meyer et al., 2021 ). The rise in commodity prices translates into an overall increase in prices ( Apergis & Apergis, 2021 ) and also an immediate and unprecedented increase in individual inflation uncertainty ( Armantier et al., 2021 ).…”