Working Paper: NBER ID: w29640
Authors: Michael Weber; Yuriy Gorodnichenko; Olivier Coibion
Abstract: As the pandemic spread across the U.S., disagreement among U.S. households about inflation expectations surged along with the mean perceived and expected level of inflation. Simultaneously, the inflation experienced by households became more dispersed. Using matched micro data on spending of households and their macroeconomic expectations, we study the link between the inflation experienced by households in their daily shopping and their perceived and expected levels of inflation both before and during the pandemic. In normal times, realized inflation barely differs across observable dimensions but low income, low education, and Black households experienced a larger increase in realized inflation than other households did. Dispersion in realized and perceived inflation explains a large share of the rise in dispersion in inflation expectations.
Keywords: inflation expectations; COVID-19; household spending; perceived inflation; realized inflation
JEL Codes: E21; E31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Inflation rates experienced by households during shopping (D19) | Perceptions of future inflation (E31) |
| Realized inflation (E31) | Inflation expectations (E31) |
| Perceived inflation (E31) | Expected inflation (E31) |
| Dispersion in realized inflation rates (E31) | Disagreement about inflation expectations (E31) |
| Disparities in realized inflation (E31) | Varying inflation experiences among households (E31) |
| Heightened disagreement about inflation expectations (E31) | Differing views on the nature of the economic shock (E65) |