Macroeconomic expectations, central bank communication, and background uncertainty: A COVID-19 laboratory experiment.
J Econ Dyn Control
; 143: 104460, 2022 Oct.
Article
in English
| MEDLINE | ID: covidwho-1907279
ABSTRACT
This paper explores the robustness of laboratory expectation formation and public signal credibility to external uncertainty shocks and online experimentation. We exploit the recent pandemic as a source of exogenous background uncertainty in a New Keynesian learning-to-forecast experiment (LtFE) where participants receive projections of varying precision about future inflation. We compare results from identical LtFE completed immediately before the onset of the pandemic, soon after (online), and well after (online and in-person). Baseline LtFEs with no communication are robust to both factors. However, both background uncertainty and online experimentation impact how subjects use public signals. The pandemic led to a decreased appetite for and tolerance of overly precise communication while increasing the efficacy of projections that also convey uncertainty. Subjects became more averse to central bank forecast errors after the onset of the pandemic if the central bank conveyed a precise outlook but not if it conveyed forecast uncertainty.
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Database:
MEDLINE
Language:
English
Journal:
J Econ Dyn Control
Year:
2022
Document Type:
Article
Affiliation country:
J.jedc.2022.104460
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