Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/268557 
Year of Publication: 
2020
Series/Report no.: 
ECONtribute Policy Brief No. 004
Publisher: 
University of Bonn and University of Cologne, Reinhard Selten Institute (RSI), Bonn and Cologne
Abstract: 
We solicit household expectations about the economic costs of the COVID-19 pandemic. Households expect output to decrease by about 6 percent and inflation to increase by 5 percentage points in the 12 months following March 2020. We also document that the uncertainty about the overall effect is large, both at the level of individual respondents and in terms of the dispersion across respondents. To the extent that the economic fallout of COVID-19 has not fully materialized yet, but is still a) anticipated and b) uncertain it depresses private expenditure and pushes the natural rate of interest downward. In the second part of the paper we quantify this effect as we feed our the survey data in a standard business cycle model. We find that the natural rate drops by several percentage points and illustrate to what extent the short-run impact of COVID-19 depends on the response of monetary policy.
Subjects: 
COVID-19
Corona
Household expectations
Survey
News shocks
Uncertainty
Natural rate
Monetary Policy
Zero lower bound
JEL: 
C83
E43
E52
Document Type: 
Research Report

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