We measure expectations about the short-run economic impact of climate change in a representative survey of US consumers. Respondents expect not much of an impact on GDP growth, but perceive a high probability of costly, rare disasters—suggesting they are salient of climate change. Furthermore, expectations vary systematically with socioeconomic characteristics, media consumption, various information treatments and over time. We calibrate a New Keynesian model to key results of the survey and spell out two implications for monetary policy. First, climate-change related disaster expectations lower the natural rate of interest substantially. Second, time-variation in disaster expectations contributes to cyclical fluctuations.

What inflation measure should central banks target? This paper highlights a mechanism where monetary policy optimally targets headline inflation if households pay limited attention to different consumption categories when forming inflation expectations.  This result stands in contrast to standard rational expectations models, where optimal policy targets core inflation. The core inflation rate excludes volatile energy and food prices (non-core) from headline inflation. Using novel survey data on inflation expectations for disaggregated consumption categories, I find household expectations are disproportionately driven by beliefs about future non-core prices. A model of bounded rationality accounts for the empirical evidence. While forming inflation expectations, households pay more attention to the volatile non-core components. Embedding this framework into a multi-sector New Keynesian model, I show that targeting headline rather than core inflation provides welfare gains.

The study of infection dynamics routinely relies on versions of the compartmental SIR model. We extend the basic SIR model to explore the trade-offs which govern individual behavior. We limit our analysis to a highly stylized version of the model and analyze peoples’ response to specific public policies in closed form. For both, vaccination and lockdown policies we establish Peltzman effects: As policies lower the risk of infections, people become more socially active, in turn, undermining their effectiveness. Data for US states and countries in Western Europe suggest that such effects are shaping actual infection dynamics to a considerable extent.

We provide a tailor-made survey that documents consumers’ perceptions of the US 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’s perceptions regarding output and inflation react rapidly. Uncertainty is pervasive. A business-cycle model calibrated to the consumers’ views provides an interpretation. The rise in household uncertainty accounts for two-thirds of the fall in output. Different perceptions about monetary policy can explain why consumers and professional forecasters agree on the recessionary impact, but have sharply divergent views about inflation. 

While most countries imposed a lockdown in response to the first wave of COVID-19 infections, Sweden did not. To quantify the lockdown effect, we approximate a counterfactual lockdown scenario for Sweden through the outcome in a synthetic control unit. We find, first, that a 9-week lockdown in the first half of 2020 would have reduced infections and deaths by about 75 percent and 38 percent, respectively. Second, the lockdown effect starts to materialize with a delay of 3–4 weeks only. Third, the actual adjustment of mobility patterns in Sweden suggests there has been substantial voluntary social restraint, although the adjustment was less strong than under the lockdown scenario. Lastly, we find that a lockdown would not have caused much additional output loss. 

Media coverage:  Süddeutsche Zeitung , n-tv , Suomen Kuvalehti 

As part of the green transition, the European cap-and-trade scheme for CO2 emissions will be extended to cover consumer durables. We propose a New Keynesian model that features both, “brown” and “green” durable goods and show that if monetary policy follows a business-as-usual approach, the green transition will be inflationary, with headline inflation increasing by about 20 basis points over a four year transition period. Monetary policy faces a tradeoff: pursuing a strict inflation target slows the green transition because green durable purchases are especially sensitive to interest rates. We quantify this tradeoff as we contrast headline and core-inflation targeting.

Real-time and time-of-use electricity pricing is based on the premise that consumers reduce demand when prices are high. In this paper, we test this assumption empirically using a large, high-frequency smart meter dataset from Denmark, estimating the short-run (hourly) price elasticity of electricity demand at the household level. Although most households show no significant responsiveness to price signals, we find that nearly one third reduce their consumption significantly when prices rise. On average, a one Danish krone increase in electricity prices leads to a 2.6\% decrease in demand. By linking smart meter data to administrative records, we further examine how price responsiveness varies across socio-demographic groups. We find that the price sensitivity is higher among households with higher educational attainment and overall electricity consumption, but lower among those aged 35 to 54.

Using novel survey evidence on consumer inflation expectations disaggregated by personal consumption expenditure (PCE) categories, we document the paradox that consumers' aggregate inflation expectations usually exceed any individual category expectation. We explore procedures for aggregating category inflation expectations, and find that the inconsistency between aggregate and aggregated inflation expectations rises with subjective uncertainty and is systematically related to socioeconomic characteristics. Overall, our results are inconsistent with the notion that consumers' aggregate inflation expectations comprise an expenditure-weighted sum of category beliefs. Moreover, aggregated inflation expectations explain a greater share of planned consumer spending than aggregate inflation expectations. 

We document novel survey-based facts on preferred long-run inflation rates among U.S. consumers. Consumers on average prefer a 0.20% annual inflation rate, well below the Federal Reserve’s 2% target. Inflation preferences not only correlate with demographic and socioeconomic characteristics, but also with economic reasoning. A randomized control trial reveals that two narratives based on economic models---describing how inflation lowers the real value of wages and money holdings---affect inflation preferences. While our results can inform the design of central bank communication on inflation targets, they also raise questions about the alignment between such targets and consumer preferences.