Partisan Expectations and COVID-Era Inflation / Carola Binder, Rupal Kamdar, Jane M. Ryngaert.

Format:

Book

Author/Creator:

Binder, Carola.

Contributor:

Kamdar, Rupal.

Ryngaert, Jane M.

National Bureau of Economic Research.

Series:

Working Paper Series (National Bureau of Economic Research) no. w32650.

NBER working paper series no. w32650

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2024.

Summary:

We document that, during the COVID-19 era, the inflation expectations of Democrats remained strongly anchored, while those of Republicans did not. Republicans' expectations not only rose well above the inflation target, but also became more sensitive to a variety of shocks, including CPI releases and energy prices. We then exploit geographic variation in political affiliation at the MSA level to show that the partial de-anchoring of expectations had implications for realized inflation. Counterfactual exercises imply that, had all expectations become as unanchored as those of Republicans, average inflation would have been two to three percentage points higher for much of the pandemic period, ceteris paribus.

Notes:

July 2024.

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