Political Shocks and Inflation Expectations: Evidence from the 2022 Russian Invasion of Ukraine

How do global supply-side shocks influence macroeconomic expectations? We exploit the 2022 Russian invasion of Ukraine as a natural experiment to identify the effect of a global political shock, which translated into a momentous supply-side shock, on inflation expectations. Collecting a unique survey among tenured economics professors in Germany, we find sizable effects on inflation expectations and monetary policy recommendations. A comparison with a representative sample of households shows that experts’ expectations adjust faster and to a larger degree to the shock. Text analyses on open-ended questions reveal that the effects are caused by supply-side models underlying experts’ formation of expectations.