This research brief reports how consumption plans and spending propensities were affected at the early stages of the COVID-19 pandemic. An online survey shows that private households have been significantly more cautious in their spending intentions, while the average marginal propensity to spend has remained at an elevated level.

Announcements of policy actions may influence households’ expectations about future individual and aggregate economic outcomes. We show that households have lowered their expectations with regard to the economic situation and that uncertainty about the economy increased during the initial stage of the COVID-19 pandemic. We also show that households who received information on stabilizing monetary and fiscal policy measures, surprisingly, become more pessimistic concerning their future income and GDP growth.

What is the appropriate exchange rate at which neither domestic nor foreign firms gain an unfair competitive advantage? A new study examines whether the estimation methods currently being used are conducive to answering this question. It turns out that this is often not the case.

Can wage hikes in Germany contribute to a reduction in global trade imbalances? A new study answers this question. Applying a general equilibrium model, it shows that, although wage hikes in Germany reduce the country’s trade surplus, the quantitative effects are relatively small and depend on the European Central Bank’s monetary policy response.

Recently, many central banks have begun communicating not just their current monetary policy, but also its probable predicted future path. However, the effectiveness of this communication hinges on how strongly it is able to influence the inflation expectations of households and firms. A standard property of macroeconomic models is that expectations respond very strongly to such announcements. A new theoretical study shows that the effects are much smaller in a model capable of matching survey evidence on expectations formation.