News and uncertainty about COVID-19: Survey evidence and short-run economic impact.

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Publisher: Elsevier B.V.
Document Type: Brief article
Length: 312 words

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Keywords Consumer expectations; Survey; Large shock; Uncertainty; Monetary policy Highlights * A survey documents that consumer expectations responded quickly to COVID-19. * Consumers expect a large contraction in income due to the COVID-19 shock. * A business-cycle model mainly sees a rise in uncertainty behind the recessionary impact. Abstract A tailor-made survey documents consumers' perceptions of the US economy's response to a large shock: the advent of the COVID-19 pandemic. The survey ran at a daily frequency between March 2020 and July 2021. Consumer's perceptions regarding output and inflation react rapidly. Uncertainty is pervasive. A business-cycle model calibrated to the consumers' views provides an interpretation. The rise in household uncertainty accounts for two-thirds of the fall in output. Different perceptions about monetary policy can explain why consumers and professional forecasters agree on the recessionary impact, but have sharply divergent views about inflation. Author Affiliation: (a) University of Tuebingen, Nauklerstraße 50, 72074 Tuebingen, Germany (b) University of Bonn and CEPR, Adenauerallee 24--42, 53113 Bonn, Germany (c) University of Tuebingen, CEPR and CESifo, Nauklerstraße 50, 72074 Tuebingen, Germany (d) Brandeis University, CEPR and CESifo, 415 South Street, 02454 Waltham, MA, USA * Corresponding author. Article History: Received 30 November 2021; Revised 5 February 2022; Accepted 7 February 2022 (footnote)[white star] We thank the audiences at several seminars, including the second joint European Central Bank-Federal Reserve Bank of New York conference on expectations surveys, for comments that helped improve an earlier version of the paper. The views stated in this paper are those of the authors and are not necessarily those of the Federal Reserve Bank of Cleveland or the Board of Governors of the Federal Reserve System. Kuester gratefully acknowledges support by the Deutsche Forschungsgemeinschaft (DFG, German Research Foundation) under Germany's Excellence Strategy EXC2126/1 390838866. Byline: Alexander M. Dietrich [alexander.dietrich@uni-tuebingen.de] (a), Keith Kuester [keith.kuester@uni-bonn.de] (b), Gernot J. Müller [gernot.mueller@uni-tuebingen.de] (c), Raphael Schoenle [schoenle@brandeis.edu] (*,d)

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Gale Document Number: GALE|A708650504