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Household Perceived Sources of Business Cycle Fluctuations: a Tale of Supply and Demand

Author

Listed:
  • Clodomiro Ferreira

    (Bank of Spain)

  • Stefano Pica

    (Bank of Italy)

Abstract

We study the joint behavior of households’ survey expectations for a wide range of macroeconomic and individual-level variables in the largest six euro area countries, both in the cross-section and time series. Although households disagree, their expectations are correlated in the cross-section. Two principal components explain a significant portion of the variance of all expectations. These components capture households’ perceptions of the sources of macroeconomic dynamics, with the first capturing supply-side views and the second component reflecting demand-side views. This structure of perceptions and disagreement is stable across countries and time and does not vary with demographic or socioeconomic characteristics. We then use these insights to identify two common factors driving expectations over time. The factors co-move strongly with measures of supply and demand disturbances and align well with a narrative based on increasing perceived inflationary pressures coming from supply after the invasion of Ukraine in February 2022.

Suggested Citation

  • Clodomiro Ferreira & Stefano Pica, 2023. "Household Perceived Sources of Business Cycle Fluctuations: a Tale of Supply and Demand," Working Papers 287, Red Nacional de Investigadores en Economía (RedNIE).
    • Handle: RePEc:aoz:wpaper:287
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    File URL: https://rednie.eco.unc.edu.ar/files/DT/287.pdf
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    References listed on IDEAS

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    1. Georgarakos, Dimitris & Kenny, Geoff, 2022. "Household spending and fiscal support during the COVID-19 pandemic: Insights from a new consumer survey," Journal of Monetary Economics, Elsevier, vol. 129(S), pages 1-14.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    Survey; Expectations; Inflation; Output; Supply; Demand;
    All these keywords.

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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