Abstract
How do households’ beliefs respond to macroeconomic shocks? I design and field a novel survey experiment that elicits expectations about inflation and unemployment following three canonical shocks associated with unexpected changes in the monetary policy rate, oil prices, and income taxes. I compare responses to predictions from standard macroeconomic models and find substantial deviations: only 1% of respondents align with theory across all shocks. Alignment with textbook models varies by shock, and is systematically related to gender, education, income, age, and homeownership. Most households interpret all shocks as both inflationary and recessionary. Many display belief inertia, failing to revise expectations in response to the shock. Crucially, those with mental models in line with textbook frameworks are more likely to adjust their saving and spending. These findings suggest that heterogeneity in macroeconomic understanding may hinder policy transmission and exacerbate the distributional consequences of aggregate shocks.
The seminar will be held in room 1249 (12th floor) at Eilert Sundts Hus. The address is Moltke Moes vei 31.