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Uncertainty can have an important impact on economic activity, but it is not directly observable. This column presents the features of the European Commission’s new index for uncertainty in the economy, based on its EU-wide Programme of Business and Consumer Surveys, and its evolution in response to the COVID-19 pandemic and the stringency of the related restrictions. It also
Can consumers’ inflation expectations help stabilise the economy? By Ioana Duca-Radu, Geoff Kenny and Andreas Reuter Economists have argued that when interest rates set by policymakers cannot go any lower, the economy can be stabilised if consumers expect the rate of inflation to increase. Yet, the evidence for this stabilising effect has been very mixed. In this article we review new evidence from a monthly survey of over 25,000 individual consumers across the euro area showing that consumers are indeed more ready to spend if they expect inflation to be higher in the future. While generali...