DP19466 Household Belief Formation in Uncertain Times
How does uncertainty influence how households form beliefs about the economy? In this paper we investigate the effect of heightened uncertainty in the post-pandemic economy on households' inflation belief formation. First, we document a decline in households' belief rigidity at the pandemic's onset, attributed to households seeking information to navigate a more uncertain economic landscape. Second, we document an increase in households' belief rigidity during the subsequent period of high inflation, driven by a deterioration in the accuracy of information, further increasing uncertainty. Overall, we demonstrate that belief rigidity can help distinguish between sources of uncertainty, with opposite effects on information frictions and macro-finance real outcomes, such as the Phillips Curve.
