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

How do global political shocks influence individuals’ expectations about economic outcomes? We run a unique survey on inflation expectations among 145 tenured economics professors in Germany and exploit the 2022 Russian invasion in Ukraine as a natural experiment to identify the effect of a global political shock on expectations about national inflation rates. We find that the Russian invasion increased short-run inflation expectations for 2022 by 0.75 percentage points. Treatment effects are smaller regarding mid-term expectations for 2023 (0.47 percentage points) and are close to zero for longer periods. Comparing the results to a representative sample of households, we find that the treatment effects are twice as large for experts than for households. Text analysis of open questions shows that experts increase their inflation expectations because they expect supply-side effects to become increasingly important after the invasion. Moreover, we find that the treatment substantially changed monetary policy recommendations.