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Partisan Expectations and COVID-Era Inflation

Author

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  • Carola Binder
  • Rupal Kamdar
  • Jane M. Ryngaert

Abstract

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.

Suggested Citation

  • Carola Binder & Rupal Kamdar & Jane M. Ryngaert, 2024. "Partisan Expectations and COVID-Era Inflation," NBER Working Papers 32650, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:32650
    Note: ME
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    Cited by:

    1. Binder, Carola Conces & Campbell, Jeffrey R. & Ryngaert, Jane M., 2024. "Consumer inflation expectations: Daily dynamics," Journal of Monetary Economics, Elsevier, vol. 145(S).

    More about this item

    JEL classification:

    • D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
    • E03 - Macroeconomics and Monetary Economics - - General - - - Behavioral Macroeconomics
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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