DP16766 News and uncertainty about COVID-19: Survey evidence and short-run economic impact

Author(s): Alexander Dietrich, Keith Kuester, Gernot Müller, Raphael Schoenle
Publication Date: December 2021
Keyword(s): Consumer expectations, Large shock, monetary policy, survey, uncertainty
JEL(s): C83, E32, E52
Programme Areas: Monetary Economics and Fluctuations
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=16766

A tailor-made survey documents consumer perceptions of the U.S.~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 perceptions regarding output and inflation react rapidly. Uncertainty is pervasive. A business-cycle model calibrated to the consumer views provides an interpretation. The rise in household uncertainty amplifies the pandemic recession by a factor of three. Different perceptions about monetary policy can explain why consumers and professional forecasters agree on the recessionary impact, but have sharply divergent views about inflation.