Assessing the Impact of Covid-19 on Inflation Expectations and Volatility: Insights from the Consumer Confidence Survey

Abstract

The outbreak of COVID-19 has caused unprecedented global health and economic challenges that have affected individuals, businesses, and governments worldwide. This study examines the impact of the COVID-19 pandemic on inflation expectations and volatility using insights from the Consumer Confidence Survey. Using the GARCHX (Generalized Autoregressive Conditional Heteroscedasticity with Exogenous Variable) model, we analyze the data from January 2019 to March 2021. Our results indicate that the COVID-19 outbreak has had a positive impact on inflation expectations and their volatility. The pandemic's impact on consumer confidence has significantly increased the uncertainty and risk associated with inflation, resulting in higher volatility. Additionally, our analysis suggests that these results have implications for the real economy. Policymakers must closely monitor inflation expectations as they may signal risks of inflation expectations un-anchoring. Our study contributes to the growing literature on the economic consequences of the COVID-19 pandemic and emphasizes the need for a coordinated policy response to address inflationary pressures and restore confidence in the economy.