How Economic Crises Affect Inflation Beliefs: Evidence from the COVID-19 Pandemic
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 ...
Introducing the FRBNY Survey of Consumer Expectations: Labor Market Expectations
In the previous two blog postings in this series, we described the goals, structure, and content of the new FRBNY Survey of Consumer Expectations (SCE) and presented some findings regarding inflation expectations. In this third posting, we focus on the labor market component of the SCE.
Measuring consumer uncertainty about future inflation
Survey measures of consumer inflation expectations have an important shortcoming in that, while providing useful summary measures of the distribution of point forecasts across individuals, they contain no direct information about an individual's uncertainty about future inflation. The latter is important not only for forecasting inflation and other macroeconomic outcomes, but also for assessing a central bank's credibility and effectiveness of communication. This paper explores the feasibility of eliciting individual consumers' subjective probability distributions of future inflation ...
Racial and Income Gaps in Consumer Spending following COVID-19
This post is the first in a two-part series that seeks to understand whether consumer spending patterns during the COVID-19 pandemic evolved differentially across counties by race and income. As the pandemic hit and social distancing restrictions were put into place in March 2020, consumer spending plummeted. Subsequently, as social distancing restrictions began to be relaxed later in spring 2020, consumer spending started to rebound. We find that higher-income counties had a considerably steeper decline and a shallower recovery than low-income counties did. The differences by race were also ...
What Are Consumers’ Inflation Expectations Telling Us Today?
The United States has experienced a considerable rise in inflation over the past year. In this post, we examine how consumers’ inflation expectations have responded to inflation during the pandemic period and to what extent this is different from the behavior of consumers’ expectations before the pandemic. We analyze two aspects of the response of consumers’ expectations to changing conditions. First, we examine by how much consumers revise their inflation expectations in response to inflation surprises. Second, we look at the pass-through of revisions in short-term inflation ...
How Do People Revise Their Inflation Expectations?
The New York Fed started releasing results from its Survey of Consumer Expectations (SCE) three years ago, in June 2013. The SCE is a monthly, nationally representative, internet-based survey of a rotating panel of about 1,300 household heads. Its goal, as described in a series of Liberty Street Economics posts, is to collect timely and high-quality information on consumer expectations about a broad range of topics, covering both macroeconomic variables and the households' own situation. In this post, we look at what drives changes in consumer inflation expectations. Do people respond to ...
The Heterogeneous Impact of Referrals on Labor Market Outcomes
We document a new set of facts regarding the impact of referrals on labor market outcomes. Our results highlight the importance of distinguishing between different types of referrals—those from family and friends and those from business contacts—and different occupations. Then we develop an on-the-job search model that incorporates referrals and calibrate the model to key moments in the data. The calibrated model yields new insights into the roles played by different types of referrals in the match formation process, and provides quantitative estimates of the effects of referrals on ...
We develop a framework where mismatch between vacancies and job seekers across sectors translates into higher unemployment by lowering the aggregate job-finding rate. We use this framework to measure the contribution of mismatch to the recent rise in U.S. unemployment by exploiting two sources of cross-sectional data on vacancies: JOLTS and HWOL (a new database covering the universe of online U.S. job advertisements). Mismatch across industries and occupations explains at most one-third of the total observed increase in the unemployment rate. Geographical mismatch plays no apparent role. ...
Who Is Driving the Recent Decline in Consumers Inflation Expectations?
The expectations of U.S. consumers about inflation have declined to record lows over the past several months. That is the finding of two leading surveys, the Federal Reserve Bank of New York’s Survey of Consumer Expectations (SCE) and the University of Michigan’s Survey of Consumers (SoC). In this post, we examine whether this decline is broad-based or whether it is driven by specific demographic groups.
Expectations of inflation: the biasing effect of thoughts about specific prices
National surveys follow consumers' expectations of future inflation, because they may directly affect the economic choices they make, indirectly affect macroeconomic outcomes, and be considered in monetary policy. Yet relatively little is known about how individuals form the inflation expectations they report on consumer surveys. Medians of reported inflation expectations tend to track official estimates of realized inflation, but show large disagreement between respondents, due to some expecting seemingly extreme inflation. We present two studies to examine whether individuals who consider ...