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

40 Pages Posted: 8 Dec 2020

See all articles by Olivier Armantier

Olivier Armantier

Federal Reserve Bank of New York

Gizem Koşar

Federal Reserve Banks - Federal Reserve Bank of New York

Rachel Pomerantz

Federal Reserve Banks - Federal Reserve Bank of New York

Daphné Skandalis

Federal Reserve Banks - Federal Reserve Bank of New York

Kyle T. Smith

New York University (NYU) - Grossman School of Medicine

Giorgio Topa

Federal Reserve Banks - Federal Reserve Bank of New York

Wilbert van der Klaauw

Federal Reserve Bank of New York; IZA

Date Written: November 2020

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.

Keywords: inflation expectations, inflation uncertainty and disagreement, COVID-19 pandemic

JEL Classification: E31, E21

Suggested Citation

Armantier, Olivier and Koşar, Gizem and Pomerantz, Rachel and Skandalis, Daphné and Smith, Kyle T. and Topa, Giorgio and van der Klaauw, H. Wilbert, How Economic Crises Affect Inflation Beliefs: Evidence from the COVID-19 Pandemic (November 2020). FRB of New York Staff Report No. 949, Available at SSRN: https://ssrn.com/abstract=3742949 or http://dx.doi.org/10.2139/ssrn.3742949

Olivier Armantier (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Gizem Koşar

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Rachel Pomerantz

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Daphné Skandalis

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Kyle T. Smith

New York University (NYU) - Grossman School of Medicine ( email )

United States

Giorgio Topa

Federal Reserve Banks - Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

H. Wilbert Van der Klaauw

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States
212-720-5916 (Phone)
212-720-1844 (Fax)

IZA ( email )

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