Heart Strings versus Purse Strings: The Impact of Affect on Spending, with Viet Hoang Nguyen

The paper explores the impact of affect (any experience of feeling or emotion) on economic decisions and presents two new findings. First, affect with the same valence (pleasantness) can have opposite impact on consumption decisions. We identify negative affect by two types of self-nominated stress in two population-level consumer surveys and find that stress increases spending. Consumers use the positive affect generated by consumption to offset the negative affect of the stress. This behavior is in contrast to the well-documented impact of negative affect identified by consumer pessimism that decreases consumption. Second, the impact of affect on consumption decisions is non-linear. The spending response conditional on both types of stress is significantly larger than the sum of unconditional responses.

On the Economic Implications of Political Polarization, with Viet Hoang Nguyen

Political polarization has two components: (i) \underline{intra}group \underline{homo}geneity (in-group polarization) which manifests as rising agreement and/or ideological alignment within a group of voters and (ii) \underline{inter}group \underline{hetero}geneity (out-group polarization) which manifests as increasing hostility between opposing groups of voters. Polarization is distinct from the partisan bias where supporters of the government are more optimistic (and favorable to government policies) than supporters of the opposition. We propose novel time series measures of political polarization among consumers and investigate how polarization influences their economic expectations, controlling for the partisan bias and demographic and macroeconomic variables. Rising in-group polarization leads to rising optimism within the partisan groups. Rising out-group polarization has the opposite impact, leading to increased pessimism for all partisan groups, in particular in times of high polarization. To demonstrate that our novel measures can be easily applied to existing surveys, we also construct polarization measures using the University of Michigan Survey of Consumers.

Public Perceptions of Forecast Uncertainty Visualizations: Some Household Survey Evidence, with Markus Hahn and Shaun Vahey

Policy makers use many ways to visualize forecast uncertainties. But, the relationships between those visualizations and public perceptions remain little studied in macroeconomic research.  We utilize new cross-sectional survey evidence from Australia, conducted in January 2024 by ANUPoll, based on over 4000 respondents drawn from the general public. Respondents were shown forecast uncertainty visualizations for the unemployment rate in Australia and were asked about the central forecasts and the probabilities of unemployment above (below) a given threshold. Inaccuracies are common. Around 45% substantially misread the implied central projection; approximately 36% put the central projection within $\pm 0.5 $ percentage points of the "true" value. In the region of 15% sum the probabilities for all possible events correctly. Furthermore, the accuracy varies with the visualization type. Gender, income and educational attainments generally shift the risk of point forecast and threshold probability errors. A (quantile) dot plot lowers the risk of both point forecast and threshold probability errors relative to a histogram but, in terms of probability forecasting, this visualization works better for statistically sophisticated individuals.

Scarred workers: Do memories of the GFC linger in consumer wage expectations? with Viet Hoang Nguyen

This paper compares consumer inflation and wage expectations. We use the example of Australia, a long term inflation targeter with monthly wage expectations data since 1997. Results suggest that the global financial crisis (GFC) was a `hot stove' event that scarred workers. Inflation expectations are firmly anchored while nominal wage expectations are not and have been declining since the early 2010's, leading to expected declines in real wages. The GFC and the subsequent economic slow-down rendered the possibility of a job loss salient for many workers which impacted workers' wage expectations formation and has led to a more pessimistic outlook on wages. This scarring (or `experience based learning') decreased the pass-through of inflation expectations to wages post GFC. These results fit neatly with weak actual pass-through from price to wage inflation observed in the US.

Disconnected: Isolation’s Hidden Toll on Society with Sandra Eickmeier and Jesús Laso-Pazos

(abstract coming soon)