ABSTRACT
Crises are times of large shocks. The coronavirus pandemic was no different in that respect. This chapter documents large shifts in expectations in response to these shocks. Firms were taken by surprise when the crisis grew beyond China and changed expectations about business demand and macroeconomic developments very rapidly. Their expectations about the pandemic, at that time, substantially influenced business decisions on how to cope best with it. Expectations of private households about real economic variables dropped markedly at the onset of the pandemic but recovered quickly. Inflation expectations started to rise shortly after the beginning of the pandemic, with some observable differences between private households and firms and professional forecasters. From a methodological perspective, the chapter emphasizes the utility of probabilistic expectations that provide evidence on households’ uncertainty. The latter has been a defining aspect of the pandemic, with key questions—like the severity and duration of the pandemic, and the type of policy response chosen by governments—being elusive at and beyond the beginning of the pandemic.
