How Does the COVID-19 Outbreak Affect Macroeconomic Expectations?

Abstract

We conduct an online experiment to investigate the effect of the COVID-19 outbreak on people’s expectation about the macroeconomy, including economic growth rate, inflation rate, unemployment rate, and their consumption, income, saving, and investment. We find that ambiguity aversion and time preference affect macroeconomic expectations. Ambiguity averse subjects are more pessimistic about the Covid-19 outbreak’s impact on the economic growth rate and are more likely to reduce their consumption. Subjects with a lower discount factor have more optimistic expectations, as they are less likely to expect lower economic growth, lower income, lower investment, higher inflation, and higher unemployment.